Overview
The USD weakened in the European morning but saw some recovery in North America assisted by stronger than expected US retail sales, though other US data was quite weak and the USD recovery faded.
North American session
The USD was modestly firmer in the US session, helped by a stronger than expected US retail sales number for October. USD/JPY however failed to sustain a move above 140 and EUR/USD recovered to 1.04 after slipping to near 1.0330. UST yields pushed lower, particularly at the long end. Fed hawk Waller signalled that he was open to a 50bps December move.
Retail sales rose by 1.3% overall and ex auto, ex-auto sales matching the gain in autos the main surprise, though this was assisted by higher gasoline prices. Ex-auto and gasoline a healthy 0.7% increase was seen, with moderate upward back revisions. However, October industrial production with a 0.1% decline was on the weak side of expectations as was a 0.1% increase in manufacturing. Downward revisions to September data added to the negative message. November’s NAHB homebuilders’ survey also saw increased weakness, falling to 33 from 38.
Canadian CPI was unchanged at 6.9% yr/yr in line with consensus but the core rates rise. There was little CAD reaction however, with the ex food and energy rate subdued on the month with a rise of 0.2%. USD/CAD gains came close to 1.3350.
Europe session
The USD weakened steadily through the European morning session, losing around 0.5% across the board, although the JPY slightly underperformed. There was no obvious trigger for the USD weakness, but the market may have perceived less need for a safe haven premium now that it seems to be believed that he missile that hit Poland was an accidental strike from Ukraine. The USD remains within recent ranges, but towards the bottom end.
The UK CPI data was stronger than expected in October, with a larger contribution from energy prices than expected as the new energy price cap was implemented. CPI headline rose 2% on the month and 11.1% y/y, but the core was also stronger than expected at 0.7% m/m and 6.5% y/y, unchanged from September. However, EUR/GBP actually rose on the data, reaching a high of 0.8775 before dropping back to just above opening levels near 0.8740. This decline on stronger than expected CPI data echoes the change in direction of the reaction to inflation data seen in Norway and Sweden in the last week. UK PPI data was also stronger than expected, reaching 19.2% y/y for the input side and 14.8% y/y on the output side, but both still declines relative to September on a y/y basis.
