BoE’s Mann watching inflation expectations.

German consumer prices declined 0.5% for November compared with expectations of a 0.2% decline with the year-on-year inflation rate slowing more than expected to 10.0% from 10.4%.

The lower inflation rate triggered some speculation that the ECB would be able to take a less aggressive stance at the December meeting.

US consumer confidence dipped to 100.2 for November from a revised 102.2 previously and marginally above market expectations with declines for both the current conditions and expectations components.

According to the Conference Board, the level of the expectations index suggests that the likelihood of recession remains elevated, although there was a slight improvement in labour-market confidence.

Bank of England Monetary Policy Committee member Mann stated that she wanted to keep an eye on medium-term inflation expectations to assess what the appropriate interest rate decision might be appropriate at the next policy meeting.

She also expressed concerns over the increased inflation pressures within the services sector.

The latest survey on inflation expectations is due on December 9th ahead of the December 15th policy decision.

China’s PMI manufacturing index dipped to 48.0 for November from 49.2 previously and below consensus forecasts of 49.0. The non-manufacturing index was also below expectations at 46.7 from 48.7, maintaining reservations over the near-term outlook.

Markets continued to monitor Chinese coronavirus policy developments.

The monthly Australian inflation data recorded a decline in the annual rate to 6.9% from 7.3% and below expectations of 7.6%.

There was volatile trading on Monday with month-end positioning having a significant impact and the dollar gaining support from corporate dollar buying.

There will be further choppy trading on Tuesday, especially around the London fix  as position adjustment continues.

Fed Chair Powell is due to make a speech after the European close with the comments on the economy and monetary policy watched very closely for any policy hints.

The lower than expected German inflation rate undermined Euro support during Tuesday. Equities also failed to hold gains which also curbed Euro support. Higher yields provided net dollar support. EUR/USD failed to challenge 1.0400 and retreated to below 1.0350 before stabilising around 1.0350.

Weaker Treasuries helped underpin the dollar against the yen. USD/JPY posted highs near 139.00 before fading to just below 138.50.

Hopes for modified Chinese coronavirus policies curbed Swiss franc support. EUR/CHF advanced to near 0.9850 with USD/CHF gains to 0.9535.

Sterling drifted lower as US equities lost ground, although the UK market was resilient. GBP/USD retreated to around 1.1950 with a recovery to near 1.1980 faded quickly.

Commodity currencies faded on Tuesday as the dollar regained ground. AUD/USD dipped back below the 0.6700 level. AUD/USD was, however, resilient on Wednesday despite weak Chinese data and lower inflation to trade just above 0.6700. The Canadian dollar was hurt by a large corporate deal as RBC bought HSBC’s Canadian operations for C$13.5bn. USD/CAD posted strong gains to highs at 1.3645 before a retreat to 1.3560 on Wednesday.

Economic Calendar

13:15US ADP Non-Farm Employment Change196K239K
13:30US Prelim GDP q/q2.80%2.60%
15:00US JOLTS Job Openings10.24M10.72M
18:30US Fed Chair Powell 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.