Confidence in the economy remained fragile, especially given the increase in coronavirus cases and fears that further lockdown measures would be needed.

Risk appetite secured a limited recovery during Thursday, but overall confidence remained fragile. European equities struggled to recover ground and Wall Street pared gains.

Confidence remained fragile and US futures moved sharply lower again on Friday with dragged Asian markets lower. The Euro declined sharply after the ECB indicated that it would take policy action at the December meeting.

EUR/USD dipped to 1-month lows near 1.1650 before a slight recovery. The dollar secured defensive support and posted 4-week highs. Sterling again demonstrated some resilience on trade hopes, but GBP/USD lost ground with unease over the UK economy. Commodity currencies recovered slightly from their worst levels, but registered significant net losses.

German labour-market data was stronger than expected with a 35,000 decline in unemployment for October after a 10,000 decline previously while the unemployment rate declined sharply. German consumer prices increased 0.1% for October with the year-on-year rate unchanged at -0.2%.

According to the advance reading, US GDP increased at an annualised rate of 33.1% for the third quarter and above consensus forecasts of 31.0%. This was the strongest quarterly expansion on record following the record contraction of 31.4% the previous quarter. Consumer spending increased at a rate of 40.7% following the contraction of 33.2% previously. Initial jobless claims declined to 751,000 in the latest week from a revised 791,000 previously and slightly below consensus forecasts. Continuing claims also declined to 7.76mn from 8.47mn, although there were further concerns that claims were falling due to benefits running out.

The ECB made no policy changes at the latest council meeting with the main refi rate held at 0.0%. Unusually, the statement made specific references to downside risks for the economy. In this context, there was a promise to look at all incoming data, including the exchange rate, and recalibrate policy at the December meeting.

President Lagarde reiterated that risks were on the downside and that the recovery had lost momentum faster than expected with a very difficult period expected in November. She made the point very clearly with comments that there is little doubt that the ECB will act in December. The dovish rhetoric and promise of action in December put downward pressure on the Euro with EUR/USD retreating to 1-month lows around 1.1650.

There were further concerns over Euro-zone coronavirus developments with Commission President Von der Leyen warning that healthcare systems could be overwhelmed. The dollar, however, was unable to gain further support on Friday with a limited retreat from 4-week highs and EUR/USD traded around 1.1675.

USD/JPY found support on approach to 104.00 and secured net gains in New York as US yields moved higher and equities attempted to recover ground.

Opinion polls suggested that Democrat candidate Biden maintained a solid lead five days ahead of the Presidential election. Markets were still wary over adopting a strong conviction over the outcome, especially with uncertainty over the Senate race. There were also concerns that the result could be delayed.

The US recorded a new record high of daily coronavirus infections of over 83,000 which triggered fresh reservations over the underlying economic outlook.

The Chinese yuan edged higher on Friday following release of the 5-year plan. The Tokyo inflation data recorded a 0.5% decline in the year to October from -0.2% previously while there was a stronger 4.0% increase in October industrial production. Equity markets were the main focus and US futures moved sharply lower in Asia which undermined risk appetite the yen gained fresh support on the crosses and USD/JPY retreated to the 104.20 area before a tentative recovery.

UK mortgage approvals data again beat consensus forecasts by a substantial margin with an increase of over 91,000 for October from a revised 85,500 the previous month and the highest reading since September 2007. Consumers, however, made a net repayment with the highest annual decline since records began in 1994.

There was further optimism that Brexit negotiations were making headway, especially with a lack of rhetoric emanating from the talks.

Confidence in the economy remained fragile, especially given the increase in coronavirus cases and fears that further lockdown measures would be needed.

The IMF was generally downbeat on the UK outlook and reiterated that continued policy support was essential, recommending further Bank of England bond purchases and increased fiscal spending. GBP/EUR edged higher, but GBP/USD dipped to lows below 1.2900 as the US currency gained fresh traction.

Overall confidence in the UK economy deteriorated, especially with increased pressure for a national lockdown for England. The latest Lloyds business confidence barometer also weakened in the latest month, reinforcing expectations that the UK economy would stall. Weaker risk appetite also hampered Sterling with a fresh GBP/USD retreat to 1.2900.

Economic Calendar

Expected Previous
07:00 GBP Nationwide House Prices (Y/Y)(OCT) 5.20% 5.00%
07:00 GBP Nationwide House Prices (M/M)(OCT) 0.40% 0.90%
07:00 EUR German Retail Sales (Y/Y)(SEP) 6.60% 3.70%
07:00 EUR German Retail Sales (M/M)(SEP) -0.80% 3.10%
07:00 Consumer Spending MM(SEP) -1.00% 2.20%
07:30 CHF Retail Sales (Y/Y)(SEP) 2.50%
08:00 CPI (EU Norm) Prelim YY(OCT) -0.60%
08:00 CPI (EU Norm) Prelim MM(OCT) -0.70%
08:00 CPI (EU Norm) Final YY*(OCT) -1.00%
08:00 CPI (EU Norm) Final MM*(OCT) 0.90%
08:00 Unemployment Rate(OCT) 10.10% 9.70%
08:00 CHF KOF Leading Indicator(OCT) 107 113.8
09:00 Germany GDP (Y/Y) -5.20% -11.30%
09:00 Germany GDP (Q/Q) 7.30% -9.70%
10:00 Euro-Zone Core CPI (Y/Y)(OCT 01) 0.20%
10:00 Euro-Zone CPI (Y/Y)(OCT) -0.30% -0.30%
10:00 Euro-Zone CPI (M/M)(OCT) 0.10%
10:00 Euro-Zone Unemployment Rate(SEP) 8.30% 8.10%
12:30 USD PCE Core Price Index (Y/Y)(SEP) 1.70% 1.60%
12:30 USD PCE Core Price Index(M/M)(SEP) 0.30%
12:30 CAD RMPI (M/M)(SEP) 3.20%
12:30 USD Personal Income (M/M)(SEP) 0.40% -2.70%
12:30 USD Personal Spending (M/M)(SEP) 1.00% 1.00%
12:30 CAD GDP (M/M)(AUG) 0.90% 3.00%
13:45 USD Chicago PMI(OCT) 58 62.4
14:00 USD Michigan Consumer Sentiment(OCT 01) 81.2 81.2

*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.