Firm US data releases on Thursday failed to generate expected reactions across asset classes..

Firm US data releases on Thursday failed to generate expected reactions across asset classes. US bond yields edged lower despite underlying reservations over inflation trends. Wall Street equities posted limited gains amid optimism over earnings data.

The dollar was unable to make headway and retreated further from 16-month highs. EUR/USD also continued to recover from 16-month lows and nudged above 1.1350. EUR/CHF again found support close to 1.0500 amid expectations of National Bank intervention to curb gains. Sterling edged lower from intra-day highs, but GBP/USD again tested 1.3500 as retail sales beat expectations. Commodity currencies struggled to capitalise on the weaker US dollar with a correction on the crosses.

The Euro edged higher ahead of Thursday’s New York open, although overall ranges were narrow with buyers still struggling to make headway.

ECB council member Holzmann stated that quantitative easing has to stop given that high inflation is likely to persist, but there were still expectations that the ECB overall would maintain a dovish policy stance which would limit underlying Euro support. Markets priced out a potential interest rate increase in 2022.

US initial jobless claims declined marginally to 268,000 in the latest week from a revised 269,000 previously and slightly above consensus expectations. Continuing claims declined to 2.08mn from 2.21mn previously, but below market expectations and the data maintained underlying confidence in the labour market.

The Philadelphia Fed manufacturing index strengthened to 39.0 for November from 23.6 previously and well above market expectations of 25.0. There was a stronger increase in new orders while shipments continued to increase at a strong rate and new orders also posted a strong gain.

There was a slight slowdown in the rate of employment growth while both prices paid and received at a stronger pace on the month. Indeed, the prices received component increased to the highest level since June 1974 which maintained concerns over inflation pressures.

New York Fed President Williams stated that inflation pressures were becoming more broadly based and future expectations are rising. He added that this is a trend that policymakers are watching closely with markets seeing a more hawkish bias from key Fed members.

The dollar overall was still unable to make significant headway and EUR/USD continued to edge higher with a move above the 1.1350 level at the European close. EUR/USD peaked around 1.1370 before edging lower on Friday, although there was wariness over potential position adjustment into the weekend.

The Kansas City Fed manufacturing index retreated to 17 for November from 25 previously while pricing pressures remained strong. US Treasuries posted limited net gains on Thursday despite the firm economic data and underlying inflation concerns. Yields drifted lower which undermined potential US dollar support, although the yen was also unable to gain significant support and edged lower on the crosses.

Chicago Fed President Evans stated that he is not expecting an increase in interest rates until 2023, but he did admit that he could be wrong in this analysis. Atlanta head Bostic stated that he expects a normalisation of policy by mid-2022 with rhetoric continuing to be monitored closely.

Markets remained on alert for a President Biden announcement on his nomination for Fed Chair and whether Powell will get a second term.

There were still underlying reservations over the Chinese property sector with ratings agency S&P stating that default is still highly likely, although the overall market impact was limited. The yen was unable to gain significant traction on the major crosses and USD/JPY secured a limited net advance to around 114.35.

There were no major UK developments during Thursday with Sterling continuing to gain net support from expectations of a December interest rate increase. GBP/USD was, however, unable to hold above the 1.3500 level which triggered a limited correction and GBP/EUR also corrected from 20-month highs.

Irish foreign Minister Coveney expressed disappointment over the UK stance on the Northern Ireland protocol which also hampered the UK currency to some extent, although the currency overall held firm and there were other reports that there was scope for a compromise on the European Court of Justice.

The GfK consumer confidence recovered slightly to -14 for November from -17 previously, although consumers were less confidence in the outlook for their own personal finances. Retail sales increased 0.8% for October, slightly above consensus forecasts and the first increase since June.

Economic Calendar

07:00GBP Retail Sales (M/M)(OCT)-0.20%
07:00GBP Retail Sales (Y/Y)(OCT)-1.30%
07:00GBP Retail Sales ex-Fuel (Y/Y)(OCT)-2.60%
07:00GBP Retail Sales ex-Fuel (M/M)(OCT)-0.60%
07:00EUR German PPI (M/M)(OCT)2.30%
07:00EUR German PPI (Y/Y)(OCT)14.20%
08:30ECB President Lagarde Speaks
13:30CAD Retail Sales (M/M)(OCT)2.10%
13:30CAD New Housing Price Index (M/M)0.40%
17:15FOMC Member Richard Harris Clarida Speech
18:00USD Baker Hughes US Oil Count454
18:00European Central Bank President Lagarde Speaks

*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.