Overall risk appetite remained fragile amid inflation concerns and uncertainty over energy costs.

There was volatile month-end trading on Thursday with choppy trading across all asset classes.

Overall risk appetite remained fragile amid inflation concerns and uncertainty over energy costs as well as supply issues. Wall Street equities dipped lower with European markets also losing ground. Asian equities retreated, although Chinese markets were closed for a holiday.

The dollar dipped sharply into the London fix before rebounding strongly to trade close to 12-month highs. EURUSD failed to hold above 1.1600 and settled around 1.1580 on Friday. GBP/USD also failed to hold a recovery above 1.3500, with Sterling overall recovering some ground against the Euro. Commodity currencies failed to hold strong gains as equity markets declined and the dollar maintained a strong tone.

German unemployment declined 30,000 for September after a 53,000 decline the previous month and a fractionally smaller than expected decline for the month. The Euro remained under pressure in early Europe on Thursday as the dollar maintained a very strong tone. EUR/USD dipped to fresh 14-month lows just below 1.1570 even with commodity currencies attempting to stabilise.

German consumer prices were unchanged for September with the year-on-year increase strengthening to 4.1% from 3.9%, but slightly below consensus forecasts of 4.2%. The data maintained concerns surrounding inflation developments, although there were further market expectations that the ECB would maintain a very accommodative stance which limited any potential Euro support.

US initial jobless claims increased to 362,000 in the latest week from 351,000 the previous week and above consensus forecasts of 335,000 which triggered some doubts over labour-market trends.

Continuing claims declined to 2.80mn from 2.82mn and in line with market expectations. The final second-quarter GDP reading was revised marginally to 6.7% from  6.6%, while the PCE prices index was unrevised at 6.5%  The Chicago PMI manufacturing index retreated to 64.7 for September from 66.8 previously, but this was above consensus forecasts while pricing pressures eased slightly, but remained at elevated levels.

Atlanta Fed President Bostic stated that the Fed has met substantial further progress on both inflation and jobs. He also noted that supply difficulties are likely to extend further, raising questions about price expectations. Chair Powell stated that he expected some inflation relief on inflation during the first half of 2022.

The dollar dipped sharply into the London fix with EUR/USD rallying to above 1.1610, but US currency buying resumed quickly and the Euro retreated to intra-day lows. Narrow ranges prevailed on Friday with the dollar just below 12-month highs and EUR/USD close to 1.1580 amid expectations that higher yields would support the dollar.

US Treasuries edged lower into Thursday’s New York open, although the 10-year bond yield was held below 1.55% while US equity futures posted tentative net gains and USD/JPY consolidated below the 112.00 level.

Volatility increased in New York with the dollar hit by selling into the London fix while the yen gained significant support from a sharp retreat in US equity indices. In this environment, USD/JPY dipped to lows near 111.40 while EUR/JPY dipped sharply to lows below 129.0.

President Biden signed a stop-gap funding bill to avid a shutdown, but the House delayed a planned vote in infrastructure spending with markets continuing to monitor developments surrounding the debt limit. The House will make another attempt to hold a vote on Friday.

Japan’s Tankan manufacturing index increased to 18 in the latest quarter from 14 previously while the non-manufacturing index increased marginally to 2 from 1 previously while the unemployment rate was unchanged at 2.8%. Markets continued to monitor global risk conditions closely. Chinese markets were closed for a holiday on Friday, but regional equity markets declined, and the yen maintained a stronger tone with USD/JPY retreating to 111.15 and EUR/JPY around 128.80.

Sterling remained weak in early Europe on Thursday, although the revised second-quarter GDP data did provide an element of support with a suspicion that the currency now offered value after sharp losses.

Sterling regained some territory ahead of the New York open with a recovery from over-sold conditions and a reluctance to abandon the potential for a Bank of England rate hike. There was further buying against the dollar into the London fix and GBP/USD pushed to highs near 1.3520, but then reversed again. GBP/EUR rallied to around 1.1660 before retreating some ground as choppy trading conditions persisted. There were still important concerns surrounding the impact of high energy prices on the economy.

Economic Calendar

07:00EUR German Retail Sales (M/M)(AUG)1.50%-4.50%
07:00EUR German Retail Sales (Y/Y)(AUG)1.90%0.40%
08:45Markit/ADACI Mfg PMI(SEP)60.160.9
08:50Markit Mfg PMI(SEP)
09:00Euro-Zone PMI Manufacturing(SEP)61.561.5
09:30GBP PMI Manufacturing(SEP 01)60.3
10:00Euro-Zone CPI (Y/Y)(SEP)2.70%2.20%
13:30USD PCE Core Price Index (Y/Y)(AUG)3.60%3.60%
13:30USD PCE Core Price Index(M/M)(AUG)0.30%0.30%
13:30USD Personal Income (M/M)(AUG)0.20%1.10%
13:30USD Personal Spending (M/M)(AUG)0.30%0.30%
13:30CAD GDP (M/M)(AUG)0.70%
14:30CAD RBC Manufacturing PMI(SEP)57.2
15:00USD Construction Spending (M/M)(AUG)0.30%
15:00US Manufacturing ISM(M/M)(SEP)58.659.9
15:00USD Michigan Consumer Sentiment(SEP 01)

*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.