Fed minutes focus on inflation.

The US ISM manufacturing index declined to 48.4 for December from 49.0 the previous month and marginally below consensus forecasts. The production and new orders components were both in contraction territory for the month while there was a small net increase in employment.

There was a further easing of supply-side pressures and inflation pressures also continued to subside. The prices component retreated to 39.4 from 43.0 and the lowest reading since April 2020.

The JOLTS data recorded a small decline in job openings to 10.46mn for November from a revised 10.51mn the previous month, but above market expectations of 10.0mn which suggested that the labour market was still firm.

According to minutes from December’s Fed meeting, members welcomed the recent inflation data, but warned that it would take substantially more evidence of progress to be confident of a sustained downward path.

There were also further uncompromising warnings that interest rates were unlikely to be cut in 2023. There was, however, agreement that slowing rate hikes would allow the bank to assess inflation and employment developments.

The dollar gained some support from the Job-openings data and Fed minutes, although overall support was limited, especially with the subdued ISM data.

The yen was the main casualty during the day with other major currencies resilient.

UK mortgage approvals declined to 46,100 for November from a revised 57,900 the previous month which was well below consensus forecasts of 55,000 and the lowest reading since June 2020.

There was, however, a stronger net increase in mortgage lending as repayments dropped sharply.

The latest ADP data on private payrolls will be released on Thursday ahead of the monthly employment report on Friday. The data will have a significant impact on sentiment towards Federal Reserve policies.

The Euro gained an element of support from the slide in gas prices and mild weather conditions. US yields overall edged lower on the day. The dollar edged higher after the US data and again after the Fed minutes. EUR/USD still found support below 1.0600. The Euro was again resilient on Thursday and EUR/USD traded above 1.0600.

The yen dipped sharply despite the decline in US yields with overall yield spreads undermining the Japanese currency. USD/JPY posted strong gains to highs just above 132.60 before consolidating.

The Swiss franc gained support amid expectations of a firm National Bank stance. EUR/CHF retreated to 0.9850 with USD/CHF lows near 0.9250 before a recovery to near 0.9300.

Global recovery hopes provided an element of Sterling support which was offset by domestic reservations. GBP/USD posted net gains, but failed to challenge 1.2100 and settled below 1.2050.

Commodity currencies posted strong gains on hopes for a global rebound. AUD/USD surged to highs above 0.6880 before a sharp correction and settled around 0.6820. USD/CAD dipped sharply to below 1.3500 despite a slide in oil prices before trading just above this level on Thursday.

Economic Calendar