Overall risk appetite held firm amid hopes that vaccines would be effective against Omicron.

Volatility eased during Thursday, although there was still a high degree of uncertainty. US labour market data remained strong, boosting confidence in the US outlook. Fed officials continued to back the case for a faster tapering of bond purchases.

Overall risk appetite held firm amid hopes that vaccines would be effective against Omicron. Wall Street equities posted net gains despite expectations of a tighter monetary policy. US bond yields overall were little changed on the day.

The dollar posted net gains during the day amid expectations of Fed tightening. EUR/USD dipped below 1.1300 and traded below this level on Friday. Sterling secured a slight net advance but remained out of the limelight and GBP/USD dipped below 1.3300. Commodity currencies lost ground as the US dollar posted gains.

Narrow ranges prevailed ahead of Thursday’s New York open with the dollar unable to gain significant traction and the Euro edged higher. Euro-zone producer prices increased 21.9% in the year to October from 16.1% the previous month and above forecasts of 19.0%, reinforcing inflation concerns.

US initial jobless claims increased to 222,000 in the latest week from a revised 194,000 previously, but below consensus forecasts of 240,000. Continuing claims declined to 1.96mn from 2.06mn and below market expectations of 2.00mn. The Challenger data also recorded a decline in US layoffs to below 15,000 for November from 22,800 the previous month and the lowest November figure for close to 30 years. The data maintained confidence in the US labour market.

Atlanta Fed President Bostic stated that there had been a pretty robust recovery in employment and GDP. He added that he would be in favour of tapering sooner rather than later, but also noted that he wanted to see continued momentum in the labour market in the monthly jobs report.

He added that he would favour bringing forward interest rate hikes if inflation stays elevated in 2022 with a hawkish overall tone.

Higher yields and the hawkish Fed rhetoric underpinned the dollar after the New York open with EUR/USD retreating to the 1.1300 level.

Fed Governor Quarles stated that he would back a faster pace of bond purchases, maintaining the flow of more hawkish rhetoric.

There was still an element of caution ahead of Friday’s US employment report given the potential implications for the December Fed meeting. A strong report would reinforce expectations that the Fed will taper at a faster pace while a weak report would trigger fresh doubts and increase uncertainty. Consensus forecasts are for a non-farm payrolls increase of around 550,000. The dollar held firm on Friday with EUR/USD retreating to around 1.1285.

US Congress reached a deal to fund the government until the second half of February which removed the immediate threat of another government shutdown. US Treasuries edged higher in early New York with the 10-year yield dipping to below 1.42%, but there was renewed selling as Wall Street opened and yields moved to above Wednesday’s closing level which provided an element of dollar support.

Cleveland Fed President Mester stated that the Omicron variant risks fuelling further inflation pressure due to the impact on supply chains and she also noted that there could be an impact in deterring people from re-entering the labour force.  Wall Street equities also posted a strong recovery which underpinned dollar sentiment and curbed potential defensive yen demand, although there was still a high degree of uncertainty. After finding support close to 112.80, USD/JPY moved above 113.00.

Chinese Caixin PMI services index dipped to 52.1 for November from 53.8 previously, reinforcing reservations over Chinese domestic demand.

Risk appetite was slightly less confident due to Omicron US cases and commodity currencies edged lower, although regional bourses made headway. The dollar, however, held a firm tone and USD/JPY traded around the 113.30 area in early Europe with EUR/JPY held below the 128.0 level.

Sterling edged higher during Thursday with the currency responding to a more constructive global risk tone as equities posted significant gains. Markets were still wary over the threat of fresh setbacks given high volatility during the past few sessions with UK coronavirus cases also causing some concern.

Irish Foreign Minister Coveney stated that there are significant gaps between the UK and EU on the Northern Ireland protocol. There was little market impact, but markets remained wary over underlying tensions, especially with the US pulling back from any trade deal with the UK.

GBP/USD traded above 1.3300 for most of the day, although it was unable to gain significant traction while GBP/EUR rallied to around 1.1700.

Economic Calendar

07:45Industrial Output MM(OCT)-1.30%
08:45Markit/ADACI Svcs PMI(NOV)52.4
08:50Markit Serv PMI(NOV)56.656.6
08:55EUR German PMI Composite(NOV)5252
08:55EUR German PMI Services(NOV)
09:00Euro-Zone PMI Composite(NOV)54.354.3
09:00Euro-Zone PMI Services(NOV)54.754.7
09:30GBP PMI Services(NOV)58.258.2
10:00Euro - Zone Retail Sales (M/M)(OCT)-0.30%
10:00Euro - Zone Retail Sales (Y/Y)(OCT)2.50%
13:30USD Average Hourly Earnings (M/M)(NOV)0.40%
13:30USD Average Hourly Earnings (Y/Y)(NOV)4.90 %
13:30USD Non-farm Payrolls(M/M)(NOV)531K
13:30USD Private Nonfarm Payrolls (NOV)604K
13:30United States Unemployment Rate(M/M)(NOV)4.60%
14:45USD Markit PMI Composite(NOV 01)57.3
14:45USD Markit Services PMI(NOV)58.2
15:00USD Factory Orders(OCT)0.20%

*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.