Markets were uneasy over near-term coronavirus developments, especially in China.

Risk conditions were calmer on Thursday, but still brittle as markets continued to focus on potential Fed tightening. US bond yields continued to move higher with the 10-year yield at 9-month highs.

Markets were uneasy over near-term coronavirus developments, especially in China. Wall Street equities were little changed with a further net retreat for the Nasdaq index. Asian equities secured limited gains with caution ahead of the US jobs data.

The dollar held firm on yield grounds but failed to extend gains. EUR/USD settled close to 1.1300 with short covering providing an element of support. Sterling held a firm overall tone on Bank of England tightening expectations with GBP/EUR close to 22-month lows.

The Australian dollar recovered only slightly from intra-day lows with cautious sentiment. The Canadian dollar secured a measured net gain amid strong trade data and gains in oil prices.

German factory orders increased 3.7% for November after a 5.8% decline the previous month and above consensus forecasts of 2.1%. Consumer prices increased 0.5% for December with the year-on-year inflation rate increasing to 5.3% from 5.2%. This was above consensus forecasts of 5.1% and the highest rate since July 1992.

EUR/USD was resilient into the New York open with support below 1.1300 and it gradually edged higher as the single currency found some support on the crosses with a peak just above 1.1330. The Euro remains a key funding currency with a reluctance to sell given fragile risk conditions.

US initial jobless claims increased slightly to 207,000 in the latest week from 200,000 previously and slightly above market expectations of 200,000 while continuing claims increased to 1.75mn from 1.72mn previously.

The latest employment data will be released on Friday with increased confidence in a strong release following the ADP data on Wednesday.

The ISM non-manufacturing index retreated to 62.1 for December from 69.1 in November and below expectations of 67.0. The new orders component also declined to 61.5 from 69.7 with a slowdown in the rate of business activity growth. There was a slower increase in employment for the month while supply-side issues eased slightly.

The prices index, however, increased to 82.5 and the third strongest reading on record.

The dollar overall found support on dips with expectations of a tighter Federal Reserve policy continuing to underpin the currency and EUR/USD dipped below 1.1300 towards the European close. The dollar was unable to generate further momentum and the pair stabilised just below this level.

Tight ranges again prevailed on Friday ahead of the US jobs data and EUR/USD traded close to 1.1300 as risk appetite held steady.

US Treasuries were little changed at Thursday’s New York open with the 10-year yield holding above 1.70% while US equity markets were little changed.

The US overall trade deficit widened to $80.2bn for November from $67.2bn the previous month with a significant increase in imports. The monthly deficit was just below record highs, but the 2021 deficit is likely to hit a record high which could unsettle the dollar if equity markets lose traction.

St Louis Fed President Bullard stated that the first-rate hike could come in March and he also forecast three rate hikes this year. San Francisco head Daly stated that the Fed was closing in on achieving its two goals in the short run. She also added that inflation had been higher than she was comfortable with for some time.

Risk conditions remained fragile after the New York open with the dollar overall edging lower. US equities were little changed with USD/JPY settling around 115.85.

Asian equities secured a limited recovery on Friday, although there were still reservations over the Chinese outlook given the risk of further coronavirus restrictions.

USD/JPY was held just below 116.00 after hitting selling interest above this level while EUR/JPY was close to 131.0.

The UK PMI services-sector index was revised higher to 53.6 for December from the flash reading of 53.2, although this was still the lowest reading for 10 months. There was a further sharp increase in charges by companies, although the rate of increase declined slightly for the first time since August. The latest Bank of England survey of financial officers indicated that companies expected to increase prices 5% in the year ahead compared with 4.2% in the previous survey.

Sterling secured an element of support from optimism that further coronavirus restrictions would be avoided. The UK currency, however, was hampered by the less confident tone surrounding risk appetite as UK equities posted a sharp correction.

The Pound held firm on Friday with markets continuing to monitor risk conditions and GBP/USD traded just below 1.3550 with GBP/EUR slightly below 1.2000.

Economic Calendar

07:00German Industrial Production (M/M)(NOV, 2021)1.00%2.80%
07:00German Trade Balance(OCT, 2021)12.8B12.5B
07:30CHF Retail Sales (Y/Y)(NOV, 2021)1.20%
07:45Consumer Spending MM(NOV, 2021)-0.40%
07:45Industrial Output MM(NOV, 2021)0.90%
09:30GBP PMI Construction(DEC, 2021)12:00
10:00Euro-Zone Consumer Confidence(DEC, 2021)########
10:00Euro-Zone CPI (Y/Y)(DEC)4.90%
10:00Euro - Zone Retail Sales (M/M)(NOV, 2021)0.20%
10:00Euro - Zone Retail Sales (Y/Y)(NOV, 2021)1.40%
13:30USD Average Hourly Earnings (M/M)(DEC, 2021)0.40%0.30%
13:30USD Average Hourly Earnings (Y/Y)(DEC, 2021)4.80%
13:30USD Non-farm Payrolls(M/M)(DEC, 2021)400K210K
13:30USD Private Nonfarm Payrolls (DEC, 2021)235K
13:30United States Unemployment Rate(M/M)(DEC, 2021)4.20%
13:30CAD Unemployment Rate (M/M)(DEC, 2021)6.00%
13:30CAD Full Employment Change(DEC, 2021)79.9K
13:30CAD Employment Change (M/M)(DEC, 2021)153.7K
15:00CAD Ivey PMI(M/M)(DEC, 2021)61.2
20:00USD Consumer Credit(NOV, 2021)16.90B

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.