Fed minutes back slower rate hikes.

The German IFO business confidence index recovered further to 86.3 for November from a revised 84.3 previously and significantly above consensus forecasts of 85.0. The current conditions component dipped to 93.1 from 94.2 previously, but there was a significant improvement in the expectations index to 80.0 from 75.9 in October.

According to the IFO, the German economy is sending signals of hope and there was a net easing of supply bottlenecks. Nevertheless, close to 50% of companies are looking to increase prices within the next three months, maintain concerns over inflation pressures.

ECB council member Schnabel stated that the central bank will probably need to raise rates into restrictive territory while incoming data suggests that the room for slowing down the pace of interest rate adjustments remains limited. She added that there is a risk that monetary and fiscal policies will pull in opposite directions.

She added that there was no sign of an actual wage-price spiral, but that it is much worse to underestimate the persistence of inflation rather than over-estimate it.

Bank of England MPC member Mann stated that the UK wage and price dynamics are not consistent with the 2% inflation target, but there is not a spiral in progress. She added that expectations were too high ahead of the November meeting, but offered little in the way of fresh guidance.

Deputy Governor Ramsden stated that he expects further interest rate increases will be required and he was not convinced that domestically-generated inflation pressures are starting to ease. He added, however, that he would consider the case for cutting rates if the economy develops differently.

The dollar remained under some pressure during Thursday following the weaker than expected PMI data and dovish hints within the Fed minutes.

The US currency did manage to recover from intra-day lows with a reluctance to chase the currency lower.

Overall trading volumes will remain low on Friday with limited US activity following the US Thanksgiving holiday.

The Swedish Riksbank increased interest rates to 2.50% which was in line with consensus forecasts and indicated that rates would be increased further, although there was an important element of uncertainty.

The Euro struggled to make further headway on Thursday. Despite hawkish rhetoric from Schnabel, sources suggested that the December rate hike would be 50 basis points. Solid risk conditions did underpin the Euro during the day. Wednesday’s weak PMI data and dovish elements in the Fed minutes continued to sap dollar support. EUR/USD was unable to challenge 1.0450 and drifted lower to near 1.0400.

Lower US yields continued to underpin the yen. USD/JPY dipped further with lows near 138.00. USD/JPY recovered to 138.65 on Friday amid mixed Chinese developments.

The Swiss franc was unable to make further headway. EUR/CHF edged above 0.9800 with USD/CHF finding support below 0.9400.

Sterling sentiment remained stronger with further short covering. The latest CBI industrial survey was little changed.

Bank of England rhetoric had little overall impact. GBP/USD posted fresh 3-month highs near 1.2150 before retreating to near 1.2100.

Commodity currencies were able to take advantage of a weaker US dollar. AUD/USD strengthened to 0.6780 before a limited correction and held below 2-month highs. USD/CAD dipped to lows just below 1.3320 before a slight correction.

After an initial retreat, the Swedish krone rallied after the Riksbank policy decision with EUR/SEK retreating to 10.82