UK narrowly avoids technical recession.
US initial jobless claims increased to a 4-week high of 196,000 in the latest week from 183,000 previously and above consensus forecasts of 190,000 while continuing claims increased to 1.69mn from 1.65mn. The claims data triggered some speculation that the labour market was starting to cool, especially with evidence of increased layoffs.
Bank of England Governor Bailey retreated that the headline inflation rate is likely to decline sharply this year, but he also noted that the bank needed to see more evidence of inflation pressure easing.
Chief economist Pill stated that the bank was seeing some signs of loosening in the labour market and that there is substantial further monetary tightening to come through as a result of lags in policy transmission.
There was notable evidence of divisions within the committee as MPC member Haskel stated that inflation uncertainty should be met with forceful action. He also expressed unease over inflation trends and considered that there are considerable upside risks to the bank’s inflation forecast.
In contrast, Tenreyro stated that rates are too high right now and also commented that she was likely to vote for a rate cut at one of the forthcoming meetings.
Risk appetite posted strong gains into Thursday’s US open with gains in equities and a dip in demand for defensive assets.
The mood gradually deteriorated as Wall Street moved into negative territory with concerns over the risk of a more aggressive Fed stance and a higher-than-expected inflation print next week.
The Swedish Riksbank increased interest by a further 50 basis-point hike to 3.00% which was in line with consensus forecasts.
The central bank expects that rates will increase further and also expressed ts preference for a stronger krona which boosted the currency.
The ONS reported that UK GDP declined 0.5% for December compared with expectations of a 0.3% contraction.
Fourth-quarter GDP was unchanged and in line with consensus forecasts which means that the UK avoided a technical recession, although the data will be revised.
Japanese media reports suggested that the government will nominate Ueda as the next Bank of Japan Governor. This would be less dovish than expected and the yen spiked stronger with USD/JPY sliding.
The latest Canadian jobs data will be released on Friday with consensus forecasts for an employment increase of around 15,000 and the unemployment rate ticking higher to 5.1% from 5.0%.
The Euro posted net gains into Thursday’s US open with firmer risk conditions underpinning the single currency. There was also weaker dollar demand on hopes for a stronger global economy. EUR/USD strengthened to highs just above 1.0790 before fading as equity markets turned more cautious with lows just below 1.0720. Risk appetite remained more fragile on Friday with EUR/USD around 1.0730.
Lower US yields supported the yen, although it retreated from intra-day highs. There was further uncertainty surrounding the next Bank of Japan Governor. USD/JPY found support below 130.50 and posted strong gains to 131.80 before settling around 131.50 in Asia. USD/JPY dipped sharply to below 131.00 after reports Ueda would be nominated as BoJ Governor.
The Swiss franc lost some ground as equities moved higher before regaining ground. EUR/CHF edged towards 0.9900 with a limited USD/CHF advance to 0.9225.
Sterling was boosted by firm risk appetite before retreating as equities lost ground. The GDP data had only limited impact. GBP/USD peaked near 1.2200 before a slide to 1.2100.
Commodity currencies posted net gains but failed to hold intra-day highs. AUD/USD hit selling above 0.7000 with a retreat to 0.6935 on Friday as risk appetite deteriorated. USD/CAD rallied back to 1.3450 from 1.3375 lows.
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