North American Summary and Highlights 19 December

North American session

After being led higher by USD/JPY in Europe, GBP/USD led the USD higher in North America, dipping below 1.26 on the fact there were three dissenting votes against the BoE decision to leave rates unchanged, with losses eventually extending to near 1.25. EUR/USD fell to touch 1.0350 from around 1.04. USD/JPY reached as high as 157.80 but corrected back up 157.35. The AUD and CAD were quieter, sustaining most though not all  of their European gains.

US data showed initial claims falling to 220k from 242k, and Q3 GDP revised up to 3.1% from 2.8%. However, December’s Philly Fed manufacturing survey was weak, falling to -16.4 from -5.5. Later November existing home sales rose 4.8% to 4.15m. The UST curve steepened with Trump demanding that the debt ceiling be raised or eliminated as negotiations to avert a government shutdown continued.  

European morning session 

JPY weakness was the man feature of the European morning. USD/JPY gained more than a figure and a half, touching a high of 157.14, while the USD otherwise slipped a little lower, with EUR/USD gaining 20 pips to 1.0410, GBP/USD 40 pips to 1.2640, and AUD/USD 15 pips to 0.6245.  

JPY losses were triggered by BoJ governor Ueda’s press conference, which was interpreted as dovish. His focus was on wage growth and whether it would continue to be strong enough to allow further rate hikes, indicating that the March wage round would be important but also saying a January rate hike could not be ruled out. USD/JPY’s gains were in any case consistent with the recent correlation between USD/JPY and the US/Japan 10 year yield spread.   

Otherwise, the Riksbank and Norges Bank rate decisions were as expected, with the Riskbank cutting a further 25bps and Norges Bank leaving rates unchanged. EUR/NOK was not much changed, but EUR/SEK dropped 0.5% on the perception that the Riksbank were nearing the end of their easing cycle. Swedish 2 year yields were up 12bps on the session.