The euro moved higher on Friday to recover most of the post-FOMC losses against the dollar and regained the key 1.10 handle. There was a mixed batch of Eurozone data but what was more positive for the euro was news that inflation for the euro area moved out of negative territory.
The flash estimate of CPI for October showed a move up to 0.0% from September’s – 0.1%. Inflation data are important for the ECB as weak inflation readings could push the central bank to extend its quantitative easing program.
Other data showed Eurozone unemployment was lower at 10.8% in September from 10.9% the month before while German retail sales disappointed.
The euro climbed as high as 1.1071 but gains are expected to be capped due to the strengthening prospects for policy divergence between the ECB and the Fed.
Sterling was firmer against the dollar to reach a high of 1.5400. There was an absence of UK data today so moves were due to the broadly weaker greenback. However investors will soon focus on next week’s key risks for the pound – the Bank of England policy meeting and Quarterly Inflation Report.
The dollar/yen pair was choppy after the Bank of Japan policy decision. After swinging from 120.28 to 121.47 in Asian trading, the dollar fell back down against the yen in the European session to trade between 120.27 and 120.72 yen. A slew of US economic data released today kept the greenback under pressure.
Demand for the dollar faded after a report showed US personal income rose 0.1% in September from the prior month, below estimates for an increase of 0.2%. Personal spending advanced 0.1%, also missing estimates for a 0.2% rise. Meanwhile, personal consumption expenditure (PCE) rose at a year-over-year rate of 0.2% in September. This was in line with forecasts but lower than a previous 0.3% reading.
Today’s US data comes after Thursday’s report which showed the US economy expanded at a slower pace in the third quarter. GDP grew at an annual rate of 1.5% in the three months to September, missing expectations for growth of 1.6%. Following an upbeat FOMC statement last Wednesday, focus now shifts to the US economy. The Fed will need to see stronger economic data that would support the case for a rate hike in December. The next most important data point would be next week’s US nonfarm payrolls report.