Powell confirms slower pace of rate hikes.

The headline Euro-Zone CPI inflation rate declined to 10.0% for November from 10.6% previously and below consensus forecasts of 10.4%.

The underlying rate held at 5.0% which was in line with market expectations.

US ADP data recorded an increase in private-sector payrolls of 127,000 for November after a 239,000 increase the previous month and below consensus forecasts of 190,000. Wages increased 7.6% in the year, a slight slowdown from 7.7% the previous month.

Fed Chair Powell stated that it makes sense to moderate the pace of rate hikes and that this could be as soon as the December meeting. He did add that it was likely that the terminal rate would be somewhat higher than expected in September, but this element had already been priced in.

According to Powell, the October inflation data was a welcome surprise, but it will require much more evidence to give reassurance.

He added that a slowing of the economy is a good way to balance risks and restrictive policy will be needed for a considerable period. Powell added that he did not want to over-tighten, but cutting rates is not something he intends to do anytime soon.

Powell’s comments overall were seen as relatively dovish with no major hawkish elements or push-back against market expectations. US yields declined following the comments with the 10-year yield retreating to 8-week lows near 3.60%.

Global risk appetite also surged following Powell’s comments with strong gains on Wall Street. In this context, there were strong gains for risk assets.

The Chicago PMI manufacturing index declined sharply to 37.2 for November from 45.2 previously which was below consensus forecasts of 47.0 and the lowest reading since June 2020. Orders declined sharply on the month, reinforcing reservations over the manufacturing outlook.

Bank of Japan member Noguchi stated that monetary easing must be maintained, but the timing of an exit could be brought forward depending on data.

The dovish interpretation of Powell’s comments and lower yields were important in pushing the dollar lower and there was further selling in Asia with USD/JPY sliding to 3-month lows and the overall dollar index just above 15-week lows.

There was a further 17,000 increase in German unemployment for November. The Euro lost ground after the lower than expected Euro-Zone inflation rate. The dollar posted strong gains into the London fix on month-end position adjustment. EUR/USD posted steady losses to below the 1.0300 level. Lower yields undermined the dollar later in the day after Powell’s comments. EUR/USD recovered strongly to 1.0400 after Powell and extended gains to 1.0450 on Thursday.

Lower yields boosted the yen against the dollar. China’s Caixin PMI data offered some reassurance. From intra-day highs at 139.90, USD/JPY dipped sharply to 138.00. USD/JPY posted further sharp losses to 3-month lows just below 136.00 on Thursday.

There was choppy Swiss trading as global moves dominated. EUR/CHF settled around 0.9850 with USD/CHF sliding to 0.9430.

Sterling moves were dominated by positioning and dollar moves. GBP/USD dipped to near 1.1900 at the London fix before a sharp recovery to near 1.2100.

Commodity currencies strengthened further following Powell’s comments. Chinese Caixin PMI data also provided some relief. AUD/USD strengthened to near 0.6800 with a further advance to 0.6835 on Thursday. USD/CAD dipped sharply to lows around 1.3400 as oil prices also rallied.

Economic Calendar

15:00BOE Gov Bailey Speaks
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