The dollar remained under pressure and the dollar index dipped to fresh 31-month lows.
Global equities were mixed on Wednesday with some reservations over valuations offsetting supportive central bank policies.
Overall risk appetite held steady amid long-term optimism over a 2021 rebound. The dollar remained under pressure and the dollar index dipped to fresh 31-month lows.
The Euro maintained a strong tone despite ECB verbal intervention risks. EUR/USD moved above the 1.2100 level for the first time since late April 2018. Sterling was hit by a lack of positive Brexit news with EUR/GBP hitting 5-week highs before a limited correction. Commodity currencies posted net gains with USD/CAD hitting 28-month lows.
The Euro-zone October unemployment rate declined to 8.4% from 8.5% previously and in line with consensus expectations. There was no significant impact from the data releases with the Euro maintaining a strong underlying tone. After a correction to just below 1.2050 EUR/USD found fresh buying interest as the US currency lost ground once again amid expectations of long-term US currency depreciation amid a flow of funds into alternative assets.
US ADP data recorded an increase in private-sector payrolls of 307,000 for November following a revised 404,000 increase the previous month and the weakest growth for six months. There were net increases across all sectors, although there was further overall evidence that the labour market was slowing.
Philadelphia Fed President Harker stated that the economy appeared to be plateauing with moderate growth expected for 2021. Fed Chair Powell stated that there may be light at the end of the tunnel by the middle of next year. The dollar overall remained on the defensive and EUR/USD challenged 1.2100 at the European close.
The Fed’s Beige Book stated that most districts reported little or no growth with fears that employment levels would decline over the winter before recovering further. There was also evidence of deterioration in loan portfolios. The report indicated the potential for further Fed action to support the economy and the dollar lost further ground.
There was no change in mood on Thursday with the dollar sliding to fresh 31-month lows and EUR/USD above 1.2100 for the first time since the end of April 2018. Markets will be on alert for any commentary from the ECB, although the bank may decide again engaging with the market ahead of next week’s policy meeting
US bond yields continued to move higher on Wednesday with the 10-year yield approaching the 1.00% level. Higher yields should trigger increased capital flows from Japan, but there were expectations that the flows would be hedged which would prevent any benefit to the US currency. USD/JPY strengthened to highs around 104.75 before a retreat to 104.50 amid wider US currency losses.
Senate majority leader McConnell stated that the Democrats were negotiating in good faith which maintained optimism that there would be agreement on a fiscal stimulus with the dollar settling around 104.50. The US House of Representatives passed the Bill which could delist Chinese companies from Wall Street. US data recorded the highest daily death toll since the pandemic started while Los Angeles introduced tight restrictions to combat an increase in cases.
China’s Caixin PMI services-sector index strengthened to 57.8 from 56.8 previously and the composite index recorded the sharpest increase since March 2010.
Overall risk appetite held firm with USD/JPY holding just below the 104.50 level while EUR/JPY strengthened to near 126.50.
Sterling dipped sharply in early Europe following EU Barnier’s briefing of the 27 EU Ambassadors. According to Barnier some slow progress had been made, but there were still important differences and he could not say whether there would be a deal.
There was generally negative rhetoric ahead of the New York open with France, for example, reported to be pushing for a no-deal outcome unless there were British concessions and also warned over a veto threat if EU conceded too much ground. EU Ambassadors also pushed for a firm stance while Barnier indicating that he had very little scope for manoeuvre under his mandate.
Tensions continued to increase given the risk of political missteps during the crucial end game period. Confidence in the UK outlook remained very fragile despite positive news on the Pfizer vaccine deployment.
Sterling continued to lose ground with GBP/USD lows below 1.3300 while GBP/EUR weakened to 5-week lows around 1.1035. Sentiment stabilised later in the session given the possibility that a deal could still be secured at the end of this week. Optimism over a global recovery also provided an element of protection with GBP/USD back at 1.3400 against the weak.
|08:45||Markit/ADACI Svcs PMI(NOV)||46.7|
|08:50||Markit Serv PMI(NOV)||46.5||38|
|08:55||EUR German PMI Composite(NOV)||52|
|08:55||EUR German PMI Services(NOV)||48.9||46.2|
|09:00||Euro-Zone PMI Services(NOV)||46.2||41.3|
|09:00||Euro-Zone PMI Composite(NOV)||49.4||45.1|
|09:30||GBP PMI Services(NOV)||45.8|
|10:00||Euro - Zone Retail Sales (Y/Y)(OCT)||2.20%|
|10:00||Euro - Zone Retail Sales (M/M)(OCT)||-2.00%|
|14:45||USD Markit PMI Composite(NOV 01)|
|14:45||USD Markit Services PMI(NOV)||56|
|15:00||USD ISM Non-Manufacturing PMI(NOV)||56.5||56.6|