Dollar slumped again on Friday.
The Beijing authorities announced on Friday that there would be a targeted and precise approach to zero covid cases amid a further strong increase in daily cases.
There will be a relaxation in quarantine and travel restrictions which boosted optimism over a rebound in the Chinese economy which underpinned risk appetite and boosted Euro demand, although Chinese case numbers continued to increase.
China also announced a plan to support the property sector. The dollar continued to lose ground on Friday with the currency index sliding to 12-week lows amid major losses against all majors and EUR/USD, for example, surged to highs around 1.0360.
The University of Michigan consumer confidence index dipped to a 4-month low of 54.7 for November from 59.9 the previous month and significantly below consensus forecasts of 59.5. There was a sharp retreat in the current conditions index with the expectations component also posting significant losses on the month. The 1-year inflation expectations index edged higher to 5.1% from 5.0% with the 5-year index at 3.00% from 2.9%.
In comments on Sunday, Fed Governor Waller stated that the central bank November statement was designed to signal a step-down to 50 basis-point rate hikes but added that the CPI report was just one data point and that markets are way out in front. He added that the Fed still has a lot of work to do and that rates will stay high for a while.
US Treasury futures lost ground following Waller’s comment with a recovery in the 10-year yield to near 3.90%. The dollar also pared losses following Waller’s comments with a recovery from 12-week lows.
Bank of England MPC member Tenreyro, however, maintained a dovish stance as monetary policy has already been tightened significantly, but the effects on demand have yet to be seen. She also stated that interest rates should not be increased to above 3.0% in 2023 and should then cut rates in 2024 as rates at this level would further reduce output below potential and there was a risk of over-tightening.
Swiss National Bank Chair Jordan stated that monetary policy is not sufficiently restrictive to lower inflation and the bank is prepared to take all measures necessary to restore price stability. Futures markets indicated a 65% chance that the central bank would raise rates by 50 basis points at the December policy meeting.
Overall sentiment surrounding cryptocurrencies remained extremely fragile as the FTX collapse continued to undermine confidence and triggered a further wave of withdrawals and bitcoin traded close to 2-year lows on Monday.
The removal of Russian forces from Kherson provided an element of Euro support. Hopes for an easing of Chinese coronavirus restrictions underpinned the Euro. China’s measures to support the property sector also underpinned sentiment on Monday.
The decline in US yields undermined dollar demand on Friday. EUR/USD hit 3-month highs just above 1.0350. Waller’s comments triggered a dollar recovery on Monday but EUR/USD held above 1.0300.
The yen posted further net gains in currency markets. USD/JPY dipped sharply to lows just below 138.50 before stabilising with a recovery to 139.35 on Monday.
Hawkish SNB rhetoric supported the Swiss franc with EUR/CHF dipping to below 0.9750 before stabilising. USD/CHF dipped sharply to lows at 0.9400 before a recovery to 0.9460.
Sterling was underpinned by firm global risk conditions and short covering was also in evidence The currency was resilient despite dovish comments from BoE’s Tenreyro and major unease over fundamentals. GBP/USD surged to 12-week highs just above 1.1850 before a retreat to near 1.1750.
Commodity currencies continued to post strong gains amid the dollar slide and gains in equities. AUD/USD posted strong gains to 7-week highs above 0.6700 on Friday before a limited correction to 0.6680. USD/CAD hit 7-week lows below 1.3250 before a limited recovery to 1.3270.