Dollar drifts lower against European currencies.
The Philadelphia Fed manufacturing index remained in contraction territory for January with a reading of -8.9, but this was above December’s figure of -13.7 and slightly stronger than consensus forecasts of -11.0.
There was net growth in shipments, but new orders contracted at a faster pace on the month. There was a net increase in employment while inflation evidence was mixed as costs increased at a notably slower rate, but prices received increased at a faster pace.
Companies were slightly more optimistic over the outlook, but still notably cautious while pricing pressures are forecast to ease.
Fed Vice-Chair Brainard stated that it will take some time and resolve to get inflation down to the 2% target. She added that the slowing in rate hikes allows the Fed to assess more data as it moves policy to sufficiently restrictive levels. She added that there are tentative signs of a slowdown in wages.
The rhetoric overall was little changed, but with a slight hint that sentiment was starting to shift with a greater emphasis on downside risks.
ECB Council Member Knot stated that the ECB s planning to hike rates by 50 basis points multiple times and won’t stop after a single hike with no sign that underlying inflation is abating.
Bank President Lagarde stated that inflation is way too high and that the bank will stay the course with rate hikes.
Minutes from December’s meeting stated that a large number of policymakers had initially expressed a preference for a 75 basis-point rate hike. A broad majority eventually backed the decision to raise rates by 50 basis points, but with the promise of a hawkish statement and a further rate hikes.
National Bank Chair Jordan warned that inflation is broader with worsening dynamics and that some further tightening was probably still needed.
The dollar posted net gains in European trading on Thursday, especially with weaker equities, but it failed to hold peak levels.
The yen also lost ground on Friday as equities attempted to regain ground and risk appetite stabilised.
Bank of England Governor Bailey stated that the bank is not endorsing a 4.50% peak in interest rates, but the market expectations were out of line in November and that was not the case in December.
The GfK consumer confidence index dipped to -45 for January from -42 and close to record lows. Retail sales volumes also declined 1.0% for December compared wth expectations of a small increase.
Gold posted further net gains on Thursday with further reports that China was buying metals.
The Euro gained some support from hawkish ECB rhetoric, but struggled to gain significant traction in Europe. Markets were wary that a lot of Euro positives have been priced in. There was still solid Euro buying on dips amid improved Euro-Zone fundamentals. The dollar was caught by indecision and uncertainty. EUR/USD found support below 1.0800 and rallied to the 1.0840 area on Friday.
USD/JPY was unable to attack the 129.00 level on Thursday and drifted to below 128.50. USD/JPY advanced to just above 129.00 on Friday despite higher Japanese inflation.
The hawkish SNB rhetoric failed to boost the Swiss franc. EUR/CHF traded above 0.9900 with USD/CHF around 0.9155.
Sterling secured net gains on expectations of a hawkish Bank of England stance, but was hurt by the latest data. GBP/USD hit highs close to 1.2400 before a correction to 1.2360 while EUR/GBP settled just near 0.8770 from 0.8740 lows.
Commodity currencies recovered from intra-day lows. AUD/USD moved back above 0.6900 from 0.6875 lows and advanced to 0.6930 on Friday. USD/CAD was unable to hold above 1.3500 and settled around 1.3460.