Equities take a breather
European stock indices returned to negative territory as infections remained elevated in the region and governments reintroduced new mild measures to counter the spread of the omicron variant despite drug makers defending the efficacy of their vaccines in the past few days.
Energy shares drove losses in the pan-European STOXX 600, but the decline is moderate so far in the day, and negligible compared to Monday’s impressive rally. Likewise, the UK’s FTSE 100 pulled below yesterday’s highs after Boris Johnson confirmed a move to plan B, which will bring masks, mandatory covid passes, and remote working into force in specific settings.
The US session also started on the bearish side, with the S&P 500, Nasdaq 100, and Dow Jones sliding modestly.
Antipodeans the worst performers
In the FX space, the risk-sensitive antipodean currencies were among the worst performers. Even though the Reserve Bank of Australia adopted a more hawkish tone earlier in the week, helping aussie/dollar to escape an outlook deterioration below the 0.6990 floor, pandemic headwinds and a slowing Chinese economy could bring new topside hurdles to the market. The pair is currently capped by the 20-day moving average (MA), while not far above, the 0.7200 psychological mark could be another challenge on the way up.
China’s PBoC reduced the amount of money banks need to set aside and increased the RRR for foreign currency deposits in order to curb yuan appreciation. Those are further steps to avert a continuous downturn in the economy and assist the troubling property market. Yet, whether they will be sufficient to eliminate economic imbalances remains to be seen.
Pound, euro under pressure
Speaking about economic growth, UK monthly GDP growth figures for October will be the next highlight on the calendar on Friday at 06:00 GMT. Forecasts suggest a poor start to the fourth quarter, and should the data arrive worse-than-expected, that could be another blow to the Bank of England as new containment measures roll in and inflation picks up.
Consequently, pound/dollar could pierce below the new 2021 low of 1.3160 in speculation the central bank may delay any monetary tightening plans next week and downplay the aggressive rate hike pricing for next year. Note that US CPI figures are also on the agenda tomorrow. Hence, the data impact could face some disruption.
In the Eurozone, bond yields changed course back to the downside, pressing euro/dollar closer to the 1.1300 level after the ECB called for a light increase in the regular APP bond purchases once the pandemic bond buying program ends in March.
Jobless claims hit fresh lows but dollar not impressed
Meanwhile in the US, weekly jobless claims came to further brighten the outlook for the labor market, marking a fresh five-decade low at 184k compared to 215k expected. Powell’s recent comments on inflation and bond tapering, however, have already prepared investors for a more hawkish meeting next week. Hence, the data provided little new information to markets, leaving dollar/yen around the 50-day MA at 1.1345 and dollar/loonie stable near the 1.2680 barrier.
Overall, the weakness in the euro and the pound is helping the dollar index to recover some lost ground today.
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