Bank of England Governor Bailey reiterated that there were no current plans to use negative interest rates.
Risk appetite was underpinned on Thursday by a decline in weekly US jobless claims despite caution ahead of Friday’s jobs data.
The dollar rallied from 26-month lows, but struggled to secure sustained support amid negative fundamentals. EUR/USD hit further resistance above 1.1900 as volatility increased. Sterling initially made gains on the BoE statement, but failed to hold its best levels with EUR/GBP above 0.9000.
Italian industrial production increased 8.2% for June, above expectations of 5.1%, and the annual decline eased to 13.7% from 20.5% previously. There were fresh reservations over the European coronavirus situation as the German health ministry warned that they were seeing a lot of smaller outbreaks. It also warned that general lockdown measures could have to be introduced again if the numbers continue to rise. EUR/USD failed to hold above 1.1900 and retreated in choppy conditions.
US initial jobless claims declined to 1.19mn for the latest week from 1.44mn the previous week and well below consensus forecasts of 1.42mn. Continuing claims also declined to 16.11mn for the week from 16.95mn previously. The data boosted confidence in the labour markets and reduced fears over a weak employment report on Friday, although uncertainty inevitably remained very high.
EUR/USD overall retreated to the 1.1820 area, but the dollar was unable to gain sustained support during the day. The US currency was unable to gain support on defensive grounds while the overall yield structure remained negative.
The pair advanced back to near 1.1900 at the European close, although the dollar did hold above 26-month lows. Weaker risk conditions supported the dollar on Friday and there was further notable uncertainty over the US jobs data with consensus forecasts for a payrolls gain near 1.5mn. Strong data would ease fears over the US economy while weak data would damage risk appetite. EUR/USD was around 1.1840 with volatility likely, especially given pre-weekend position adjustment. German trade data was stronger than expected.
The dollar was unable to gain sustained support during Thursday as yield trends remained negative for the US currency. Equity markets held firm, however, which limited the potential for any defensive yen support.
Markets continued to monitor rhetoric surrounding the US fiscal stimulus bill as time pressures intensified ahead of the scheduled weekend recess. After the latest round of talks, Treasury Secretary Mnuchin stated that negotiators were close on several issues, but there were still important differences while Democrats expressed disappointment with the talks as House Speaker Pelosi stated that talks were still very far apart. If there is no deal on Friday, President Trump has threatened to issue executive orders to reinstate some unemployment benefits.
President Trump took an optimistic stance on a potential coronavirus vaccine by early November, but the dollar was unable to make any headway.
The latest Chinese trade data reported an increase in exports of 10.4% in the year to July, well above forecasts of 0.9%, while import growth was held at 1.6% and below forecasts of 2.5%. Trade data was overshadowed by a further increase in US-China tensions as Trump signed an executive order to stop US companies dealing with WeChat from mid-September as well as Bytedance.
There was uncertainty over the scope of the order, but Asian equity markets dipped which undermined risk appetite. In this environment, USD/JPY was held close to 105.50 as the yen gained renewed support on the crosses.
The UK PMI construction index strengthened to 58.1 for July from 55.3 previously. This was above consensus forecasts of 57.0 and the strongest reading since October 2015. There was strong growth in the residential sector for the month, but overall confidence edged lower from June and there were still important concerns over the medium-term outlook given a lack of order inflows. Government infrastructure plans had little overall market impact.
In his press conference, Bank of England Governor Bailey reiterated that there were no current plans to use negative interest rates, although they were still in the toolbox. Bailey also stated that risks are skewed strongly to the downside and that the bank was ready to take further action if necessary. This could include further quantitative easing and new forms of forward guidance. The lack of enthusiasm for negative interest rates was an important factor in providing initial Sterling support with GBP/EUR rising to 1.125 before correcting.
GBP/USD was unable to challenge the 1.3200 area and it drifted lower later in the session amid fundamental reservations.
|07:00||German Trade Balance(JUN)||10.1B||7.6B|
|07:30||Non-Farm Payrolls QQ||-||-2.00%|
|07:45||Industrial Output MM(JUN)||15.10%||19.60%|
|08:30||GBP Halifax HPI (M/M)(JUL)||-||-0.10%|
|13:30||USD Average Hourly Earnings (M/M)(JUL)||-0.90%||-1.20%|
|13:30||USD Average Hourly Earnings (Y/Y)(JUL)||5.30%||5.00%|
|13:30||USD Non-farm Payrolls(M/M)(JUL)||2260K||4800K|
|13:30||USD Private Nonfarm Payrolls (JUL)||2250K||4767K|
|13:30||United States Unemployment Rate(M/M)(JUL)||10.30%||11.10%|
|13:30||CAD Employment Change (M/M)(JUL)||-||952.9K|
|13:30||CAD Full Employment Change(JUL)||-||488.1K|
|13:30||CAD Unemployment Rate (M/M)(JUL)||12.00%||12.30%|
|15:00||USD Wholesale Inventories||-2.00%||-1.20%|
|15:00||CAD Ivey PMI(M/M)(JUL)||-||58.2|
|20:00||USD Consumer Credit(JUN)||-||-18.28B|