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    European Session – Euro approaches 1.15 but reverses after ECB Nowotny comments and upbeat US data

    The euro tested levels just shy of 1.15 before falling back after European Central Bank Governing Council member Ewald Nowotny said the ECB must do more to stimulate the Eurozone economy. The central bank policymaker’s latest comments add weight to the potential for further easing as he said the ECB is “clearly missing its inflation target” and that “additional instruments are necessary”.

    The dovish remarks led to losses in the euro, After having reached a session high of 1.1494, the highest in seven weeks, it fell to a low of 1.1424 in reaction to Nowotny. The euro extended its decline to 1.1362 following a boost to the dollar after upbeat US data.

    The dollar strengthened across the board after today’s US data, bouncing back against the yen to recoup some earlier losses that took it down to 118.05. Following the data, the dollar rebounded to 118.76. The pound fell to 1.5414. Earlier in the day it hit a high of 1.5506 but had already started declining before the US data.

    Today’s encouraging US economic releases on jobless claims and inflation helped temper yesterday’s disappointing retail sales numbers which led to weakness in the dollar. The recent push back of a rate hike date has been a main driver behind dollar weakness. But today’s data provided for chance to rebound.

    Initial jobless claims in the US fell by 7,000 to 255,000 in the week ending October 10, reaching the lowest level since 1973. Expectations were for claims to total 270,000. More good news showed that the prior week’s number was revised down to 262,000 claims from 236,000.

    The annual US inflation rate came in at 0.0% in September which exceeded forecasts for a 0.1% decline. On a month-on-month basis, CPI declined by 0.2% in September, in line with forecasts and followed a 0.1% rate in August. But the fact that CPI did not fall at a greater rate than expected and a steady pick-up in underlying price pressures should help calm fears of a disinflationary trend. CPI excluding food and energy came in stronger in September at 0.2% month-on-month, beating a 0.1% increase expected. Core inflation on an annual basis rose 1.9% versus 1.8% expected. Today’s data could strengthen the case for a rate hike before the end of the year.

    Separate data showed the Philly Fed Manufacturing Index remained in negative territory, printing a reading of -4.5 in October, more than the -2.0 expected but smaller than the previous -6.0 reading. The soft numbers capped the dollar’s rally from the prior data.

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