UK GDP better than expected.

US initial jobless claims increased to 211,000 in the latest week from 190,000 previously which was above consensus forecasts of 195,000 and the highest reading since late 2022. Continuing claims also increased to 1.72mn from a revised 1.65mn and equalled the highest figure since early 2022.

Challenger job cuts declined to just below 78,000 for February from just below 103,000 the previous month, but this was still a substantial increase from the level near 15,000 last year. For the first two months of 2023, the number of layoffs was the highest since 2009.

Wall Street equities posted gains in early trading, but there was a rapid change in mood later in the session. The Silvergate collapse and fears over wider losses in the loan portfolios triggered a slide in the banking sector. Contagion fears led to a 1.85% decline in the S&P 500 index.

The slide in equities triggered defensive bond buying and there was also evidence of stop-loss buying.

The 2-year yield dipped below 5.00% and the 10-year yield dipped sharply to near 3.80%.

Lower bond yields tended to undermine the dollar despite potential demand on defensive grounds.

There was notable demand for the Swiss franc during the day.

The Bank of Japan held monetary policy unchanged at the latest policy meeting with yields at -0.1% and a 1.0% cap for the 10-year bond yield. This was the final meeting for Governor Kuroda which had led to some speculation over a change. The yen posted sharp losses after the decision.

UK data recorded a 0.3% GDP increase for January compared with expectations of a 0.1% increase with a rebound in services offset by a dip in manufacturing and construction output.

The latest US employment report will be very important for Federal Reserve expectations and dollar moves on Friday.

After last month’s surge in non-farm payrolls of over 500,000, consensus forecasts are for an increase of around 220,000 with the unemployment rate holding at 3.4% and an increase in average hourly earnings of 0.3%.

The latest Canadian labour-market report is also due on Friday.

Consensus forecasts are for an employment increase of 10,000 after the 150,000 surge the previous month with unemployment edging higher to 5.1% from 5.0%.

The Euro edged higher on Thursday, although the overall mood remained cautious. The dollar also posted a limited net correction in Europe. US yield inversion maintaining some recession concerns. EUR/USD settled around 1.0570. The sharp dip in equities and slide in yields limited dollar support despite potential defensive support amid risk aversion.  EUR/USD traded around 1.0590 in early Europe on Friday.

USD/JPY found support just below 136.00 on Thursday. The yen dipped sharply after the Bank of Japan policy decision. USD/JPY jumped to near 137.00, but lower US yields limited potential yen selling with a USD/JPY retreat to 136.50. The Swiss franc posted gains on expectations the National Bank would resist currency losses.

Weaker US equities triggered fresh franc demand on Friday. EUR/CHF retreated to below 0.9850 with USD/CHF sliding to lows near 0.9280 before recovering slightly.

Sterling secured a limited net corrective recovery on Thursday and was notably resilient despite a slide in risk appetite. Stronger than expected UK GDP also provided support. GBP/USD advanced to near 1.1950 before stalling.

Commodity currencies secured a limited corrective recovery before being hurt by the slide in equities. AUD/USD settled around 0.6590 on Friday amid defensive risk conditions. USD/CAD edged below the 1.3800 level before a rebound to 1.3840.

Economic Calendar

07:00UK GDP m/m0.1%-0.5%
13:30Non-Farm Employment Change224K517K

*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.