The US dollar remained underpinned by Fed rate hike expectations as it hit a fresh 3-month high against the yen in today’s European session, while the pound was unable to break above its recent range after UK growth beat expectations.
The British economy defied fears of a Brexit-induced slowdown to grow by 0.5% q/q in the third quarter, only moderately weaker than the 0.7% rate of the second quarter. Expectations were for UK growth to more than halve to 0.3%. On an annual basis, GDP was up 2.3% in Q3 compared with 2.1% in Q2. Growth in the three months immediately after the Brexit referendum was driven by the services sector, which expanded by 0.8% q/q.
The pound jumped to 1.2270 dollars after the data but the upside momentum proved short lived as sterling slid to 1.2170 by late European trading. The euro also rebounded against the pound, from 0.8893 to around 0.8970 in late session, and was able to hold to most of its gains against the dollar. The single currency was last trading at 1.0915 dollars.
Central bank decisions dominated the start of European trading as policy announcements came from Sweden and Norway. Sweden’s Riksbank kept its repo rate at -0.50%, while Norway’s Norges Bank held its policy rate at 0.50%.
The Norwegian krone strengthened to around 8.20 per dollar and 8.97 per euro after the announcement as the bank signalled rates will remain at current levels in the period ahead. But the Swedish krona fell sharply after the Riksbank said the likelihood of further rate cuts has increased. The Riksbank also signalled it may extend its asset purchase program at its December meeting. This pushed the krona to a 6½-year low of 9.8701 per euro and to a 7½-year low of 9.0424 per dollar.
The dollar meanwhile continued to power ahead as traders shrugged off disappointing durable goods orders data. Durable goods orders fell by 0.1% m/m in September, missing forecasts of a 0.1% increase. However, there was an upward revision to the previous month’s figure from 0.1% to 0.3%. The core measure of durable goods, which excludes defence and aircraft orders and is a good indicator of business spending, also missed estimates and was down 1.2% m/m versus forecasts of a 0.3% gain.
Other US data were mixed. Weekly jobless claims again rose by slightly more than expectations as they were up 258k last week. This compares with forecasts of 255k and an upwardly revised 261k the prior week. Pending home sales were more positive though as they increased by 1.5% in September versus expectations of a 1.2 rise%.
The dollar broke above 105 yen in late session as the pair made a fresh 3-month high. The strong greenback weighed on the Australian and New Zealand dollars. The aussie was down 0.7% to just below the 0.76 level, while the kiwi was trading 0.4% lower at 0.7122.
Commodities held firm however as gold was flat around $1267 an ounce and crude oil managed to recover from earlier lows. WTI futures were up over 1% in late session as they attempted to reclaim the $50 a barrel level. Pushing oil higher today were reports that OPEC countries are considering an output cut of 4%. This provided little support to the Canadian dollar though as USDCAD climbed to near 7-month highs at C$1.3384.
Looking ahead to tomorrow, Japanese inflation data will be watched ahead of the US Q3 GDP figures.