There was a modest improvement in risk appetite in Thursday’s European session but the pound and the dollar were unable to hold above key levels. European stocks however, bounced back strongly from yesterday’s sharp losses with many of the major indices up by over 1.5% in late session.
Market sentiment was helped by the cautious tones of the US Federal Reserve and the European Central Bank. The Fed released its June meeting minutes yesterday, while the ECB published its June meeting account today. The ECB Governing Council was worried of “significant negative spillovers to the euro area” if Britain voted to leave the EU. This suggests the ECB is likely to maintain an easing bias for the foreseeable future given the outcome of the referendum after the June 1-2 meeting.
The euro remained muted against the dollar for much of the day but was above earlier lows at 1.1075 dollars in late European trading.
Sterling climbed steadily against the dollar during the course of the day, reaching a high of 1.3046 before losing the 1.30 handle in late session to slip to 1.2935 dollars. Better-than-expected UK industrial output data supported the pound today.
Both industrial and manufacturing production fell by 0.5% month-on-month in May, but the declines were smaller than the expected rate of -1.0% for each. In addition, April’s figures were revised higher, helping industrial output in the three months to May reach a 6-year high.
The data also lifted the pound against the euro as the single currency slid 0.3% to 0.8560 pounds.
The dollar received only a brief boost from strong jobs data out of the US today. Initial jobless claims for the week ending July 2 rose by 254k, below estimates of 270k and down from an upwardly revised 270k the prior week. The ADP employment change also beat estimates, coming in at 172k versus forecasts of a smaller increase of 159k.
If today’s jobs numbers are any indication, Friday’s non-farm payrolls report for June should show a strong rebound from May’s unexpectedly weak report. However, the data had limited impact on the dollar, which only managed to climb to 101.22 yen before heading back down to reach a new intra-day low of 100.71 yen.
The New Zealand dollar was a surprise winner on Thursday after the country’s central bank sounded the alarm bell over the booming housing market. The Reserve Bank of New Zealand’s Deputy Governor Grant Spencer warned of “significant imbalances” in the housing market in a speech earlier today, adding that the RBNZ is considering macro-prudential policy tools to reign in house price growth.
The comments make it less likely that the RBNZ will cut interest rates further, at least until after new measures have been introduced to cool the housing market. The kiwi jumped sharply after the speech and stood 1.2% higher against the US dollar at 0.7215 in late European trading.
Crude oil went into reverse in late European session, having earlier extended yesterday’s rebound following a larger-than-expected drop in US crude stocks according to the API report. However, today’s report from the US Energy Department showed a smaller-than-expected drawdown in crude oil inventories. This pushed WTI futures below $47 a barrel, having earlier traded above $48.
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