Dollar Comes Back Mostly Firmer, But Focus Is Elsewhere

The US dollar corrected lower yesterday, but most of the selling was over by the end of the Asian session, and the greenback steadied in Europe and North America.

The dollar is firm against the euro and yen but within yesterday’s broad trading ranges. The Australian and Canadian dollar’s gains from yesterday are being pared.  

What had looked like a possible deeper dollar correction is turning into a consolidative phase that may be sufficient to alleviate the over-extended technical condition. Equities are lower. Of note, the Topix  12-day advance was snapped with a minor loss of less than 0.1%. The MSCI Asia-Pacific Index is off 0.25% to snap a three-day advance.  The Dow Jones Stoxx 600 is off fractionally to extend yesterday’s decline.  The MSCI Emerging Market equity index is lower by 0.25%, after initially building on yesterday’s advance to reach a two-week high. The South African rand is the weakest of majors, while the Chinese yuan, which was fixed higher by the PBOC for the second session, is the strongest of the emerging market currencies, gaining almost 0.3%. European bonds firmer, led by a 6 bp decline in Italy’s 10-year yield.  French bonds are also outperforming German bunds, narrowing the premium from a two-year peak.  The US 10-year yield is firm near 2.33%.  

Sterling is an exception. It is firmer, following news that mortgage approvals rose more than expected in October to stand at the highest since March, while household credit increased GBP1.6 bln. The Bank of England noted that the effective interest rate on new mortgages fell 11 bp in October to 2.16%, the lowest since at least 2004. However, even with the upticks sterling has been confined to yesterday’s ranges.  

German states have reported preliminary November CPI figures, and national estimate will be reported shortly. The EU-harmonized measure is expected to rise 0.1% to lift the year-over-year rate to 0.8%. It would match the strongest pace since June 2014. It finished last year at 0.2%.France reported Q3 GDP rose 0.2%, in line with Q2. However, Q4 began on a firmer note, with October consumer spending jumping 0.9%, threefold more than the Bloomberg median, tainted a little by the downward revision to the September series to -0.4% from -0.2%.