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Asian Session – Dollar bounces back but euro edges lower on German Q3 GDP

The US dollar was firmer on Friday after posting losses on Thursday on reduced risk appetite. Hawkish comments by several Fed officials yesterday failed to lift the dollar and interest rate futures were still implying a 70% chance of a rate rise by the Fed in December.

New York Fed President William Dudley sounded less dovish than usual and said he saw “the risks of moving too quickly versus moving too slowly as nearly balanced”. The Fed’s Vice Chair Stanley Fischer saw inflation picking up to around 1.5% in 2016 as the effects of the strong dollar and lower energy prices fade out. Chicago Fed President Charles Evans was more cautious though and said he would like to be more confident that inflation is starting to head higher before raising rates. Fed Chair Janet Yellen also spoke on Thursday but did not comment on the Fed’s monetary policy.

The dollar extended yesterday’s slide in early Asian session today, falling to 122.48 yen but had climbed to around 122.70 yen later in the session.

Strong industrial production figures from Japan had limited impact on the yen. Industrial production in September was revised up from 1.0% to 1.1% on a month-on-month basis but output was down 0.8% over the past 12 months.

The euro rose yesterday despite comments by ECB President Mario Draghi to the European Parliament that stoked expectations that the ECB will announce new monetary stimulus measures in December. Draghi’s remarks were largely in line with the October ECB meeting. The single currency hit a high of 1.0829 dollars in early Asian trading before receding to 1.0777 dollars.

German GDP data for the third quarter weighed on the euro in late Asian session as it showed the Eurozone’s largest economy slowing from 0.4% q/q growth in the second quarter to 0.3% q/q in the third quarter. The figures are in line with estimates but show that the German economy was not immune to the slowdown in emerging market economies during the quarter.

The pound kept to yesterday’s trading range and was slightly lower at 1.5212 dollars. Dovish comments yesterday by the Bank of England’s Chief Economist Andy Haldane kept some pressure on the pound. Haldane said UK rates do not need to go up in the near future due to low earnings growth and uncertain outlook for the economy.

Crude oil prices attempted to claw back some of yesterday’s sharp falls when prices fell for a 7th straight day and closed over 3% lower. US oil futures were slightly firmer in late Asian session at $41.66.

Coming up later in the day, Eurozone third quarter GDP data will be the main focus in European trading. While later in the US session, US retail sales will be looked at closely on signs that the US economy is maintaining momentum ahead of next month’s FOMC meeting. Also due later is the University of Michigan preliminary confidence index for November.

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