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    European Session – Sterling shrugs off weak UK retail sales, dollar down despite fall in jobless claims

    Markets were upbeat on Thursday as a result of more clarity coming from the FOMC minutes which indicated that December might be the month when we finally see that first rate hike. But at the same time the Fed also seems to be indicating in its minutes that the pace of tightening will be more gradual. As a result there was a weakening of the US dollar index. The dollar backtracked against most major currencies and commodities rebounded.

    The euro pushed up to a high of 1.0717 in Asia this morning and after a choppy session in Europe it managed to hit a high of 1.0730 early in the US session.

    Sentiment for the single currency was slightly dampened after minutes of the European Central Bank’s October meeting were released today. According to the minutes, there is risk that the Bank would not meet its inflation target. This increased expectations that the ECB would take action in its December meeting to increase stimulus measures, thereby giving the euro some weakness after the minutes today.

    Sterling was knocked down following data that showed UK retail sales declined more than expected last month after surging in September. This underpinned expectations that interest rates are likely to stay lower for longer. October retail sales were slightly below expectations, falling 0.6% month-on-month, compared to expectations of a contraction of 0.5%. On a year-on-year basis, retail sales were up 3.8%, falling short of forecasts of 4.5%.

    The pound dipped to 1.5230 after the data then subsequently recovered to 1.5288. Yesterday sterling was lifted after some hawkish comments by Bank of England Deputy Governor Ben Broadbent which raised expectations of a rate hike sooner but today’s data may dent those expectations.

    Data from the US today included jobless claims and the Philly fed index.

    Initial jobless claims fell last week, an indication the US labor market is improving. Initial jobless claims decreased by 5,000 in the week ending November 14 to 271,000. Most economists had expected 270,000 new claims last week. Meanwhile, the prior week’s claims were unrevised at 276,000.

    The Philadelphia Federal Reserve manufacturing index beat expectations in November, returning into positive territory for the first time in two months and surpassing forecast for a -0.8 reading, with the gauge rising to 1.9 this month from -4.5 in October.

    The US data today had little impact on the dollar, which continued to fall against the yen to reach 122.84. Yesterday, the dollar had hit as high as 123.74 yen.

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