Risk appetite deteriorated on Thursday amid unease over the global recovery as US and European coronavirus cases increased.

Risk appetite deteriorated on Thursday amid unease over the global recovery as US and European coronavirus cases increased.

There was also no headway on a US fiscal stimulus package. Wall Street indices pared early losses, but European bourses posed significant daily losses. The dollar secured some support on defensive grounds with the US currency at 2-week highs.

EUR/USD dipped below the 1.1700 level amid unease over Euro-zone developments.  Sterling lost ground amid disappointment over the tone of EU trade rhetoric with GBP/USD near 1.2900. Commodity currencies overall dipped sharply amid the slide in risk appetite before paring losses. The Australian dollar was undermined by Reserve Bank easing expectations.

Italian industrial sales increased 5.9% in August with the year-on-year decline slowing to 3.8% while orders increased 15.1% to give a 6.1% annual increase. The Euro was unable to make any headway and gradually lost ground as markets fretted over increased coronavirus cases in the Euro-zone area.

US initial jobless claims increased to a 2-month high of 898,000 in the latest week from a revised 845,000 the previous week and above consensus forecasts of 825,000. Continuing claims declined to 10.02mn from 11.18mn previously and well below expectations of 10.70mn. There was, however, a sharp increase in the number of claims under the pandemic emergency compensation programme and further distortion from the California data.

The New York Empire manufacturing index declined to 10.5 for October from 17.0 previously and below consensus forecasts of 15.0. There was stronger growth in new orders for the month while unfilled orders declined at a slower rate. The Philadelphia Fed manufacturing index strengthened sharply to 32.3 for October from 15.0 and well above consensus forecasts of 14.0. There was strong growth in new orders and smaller increase in unfilled orders. Expectations surrounding the 6-month outlook were slightly weaker in New York, but more optimistic in Philadelphia. The overall data impact was limited, but with reservations over the claims implications.

ECB President Lagarde reiterated that the governing council will carefully assess all incoming information including developments in the exchange rate. She also repeated that headline inflation was likely to turn positive from early 2021. The dollar gained fresh demand as equity markets retreated. Underlying Euro sentiment remained negative with a EUR/USD dip to just below 1.1700. There was little change on Friday with the dollar close to 2-week highs and EUR/USD just below 1.1700.

Risk appetite deteriorated ahead of Thursday’s New York open with US equity futures moving sharply lower and the Japanese yen gained fresh support. The dollar also secured an element of defensive support which curbed losses against the Japanese currency, although it drifted lower.

There was further uncertainty over a US fiscal stimulus as contradictory rhetoric continued. There were some suggestions that Treasury Secretary Mnuchin and House Speaker Pelosi were holding further talks, but there was little evidence of significant headway. There was also little of substance in the town-hall debates held by Presidential candidates Biden and Trump. USD/JPY was able to hold above the 105.00 level and settled just below 105.50 as narrow ranges prevailed.

Risk conditions were subdued in Asia with an underlying fragile tone surrounding as unease over the global economic recovery intensified despite evidence of recovery in Asia. USD/JPY settled around 105.25 as the yen continued to gain an element of defensive support.

The EU confirmed that it would continue Brexit talks over the coming weeks, but the position hardened slightly with no move to intensify talks. UK Chief Negotiator Frost returned from Brussels and reported back to the Prime Minister. A spokesman for Johnson stated that the UK would reflect on the outcome of the EU Council before setting out the UK’s next steps. There were further and consistent calls from EU Leaders that the UK needed to take further action to break the impasse.

After the European close, Frost stated that the UK was disappointed by the EU statement and rejected that all concessions needed to come from the UK side. Sterling was also unsettled by further concerns over coronavirus developments with further areas of the UK, including London, placed into the high alert level. As well as damage to the economy, there was unease over the impact on the budget deficit, reinforcing expectations of further Bank of England action.

GBP/USD dipped to 1.2900 amid the firmer dollar while GBP/EUR dipped towards the 1.1000 area. The government will set out its reaction and approach to trade talks on Friday and Sterling will slump if there is any move to pull out of talks. Overall global risk appetite remained fragile which also hampered Sterling and GBP/USD traded below 1.2900 with the Euro around 0.9070 as markets braced for further volatile trading during the day.

Economic Calendar

Expected Previous
09:00 CPI (EU Norm) Prelim YY(SEP) -0.50% -0.50%
09:00 CPI (EU Norm) Prelim MM(SEP) - -0.60%
09:00 CPI (EU Norm) Final YY*(SEP) -0.50% -0.90%
09:00 CPI (EU Norm) Final MM*(SEP) -1.30% 1.00%
10:00 Euro-Zone CPI (M/M)(SEP) -0.40% 0.10%
10:00 Euro-Zone CPI (Y/Y)(SEP) - -0.30%
10:00 Euro-Zone Core CPI (Y/Y)(SEP 01) 0.40% 0.20%
10:00 Euro-Zone Trade Balance(AUG) - 27.9B
13:30 USD Core Retail Sales (M/M)(SEP) 0.50% 0.70%
13:30 USD Advance Retail Sales (M/M)(SEP) 0.50% 0.60%
13:30 CAD Foreign Securities Purchase(AUG) - -8.52B
13:30 CAD Manufacturing Shipments (M/M)(AUG) 8.70% 7.00%
14:15 USD Capacity Utilization(SEP) 71.80% 71.40%
14:15 USD Industrial Production(SEP) - -7.73%
15:00 USD Business Inventories(AUG) 0.40% 0.10%
15:00 USD Michigan Consumer Sentiment(OCT 01) 81 80.4
15:00 NAHB Housing Market Index(OCT) - 83
21:00 USD TIC Net Long-Term(AUG) - 10.8B

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.