U.S. dollar trades mixed on Friday but FOMC minutes continues to weigh: Oct 12, 2015

Market Review - 09/10/2015 17:41GMT 
 
U.S. dollar trades mixed on Friday but FOMC minutes continues to weigh

The greenback traded mixed against the other major currencies but remained under pressure on Friday, as the minutes of the Federal Reserve's latest policy meeting on Thursday added to expectations that interest rates won't be hiked until next year. FOMC minutes released on Thursday indicated that policymakers were still watching domestic inflation and the impact of slower global growth when considering when to raise interest rates.

Although euro moved sideways versus U.S. dollar in Asia after a brief retreat from 1.292 to 1.1267, renewed buying interest emerged after European traders entered the market and price later rallied to 1.1379 in New York morning, then a fresh 3-week high of 1.1387 in New York midday before retreating due to some profit-taking.

On the data front, INSEE said on Friday that French Industrial Production rose to 1.6% in August, from -1.1% in the preceding month whose figure was revised down from -0.8%. Meanwhile, Istat showed Italian industrial production fell more-than-expected in August by 0.5% , from 1.1% in the preceding month. Market had expected Italian Industrial Production to fall -0.3% last month.

ECB's President Mario Draghi said in IMFC statement, 'ready to use all the instruments available with our mandate to act, if warranted, including by adjustment the size, composition and duration of the asset purchase program; developments in Greece in the first half of this year served as a reminder that euro area architecture remains unfinished.'

Versus the Japanese yen, the greenback strengthened after finding support at 119.84 in Asia and then ratcheted higher to a high of 120.35 at New York open before moving sideways for rest of the session, as gain in global stocks increased risk appetites and pushed investors away from the safe-haven currency yen.

In other news, Atlanta Fed President and CEO Dennis Lockhart said on Friday, 'rate hike in October or December likely appropriate; economic data mixed, "a touch more downside risk" in recent weeks; liftoff decision hinges on incoming data, especially consumer activity; sees rates liftoff relatively soon; still expects inflation to rebound in medium term as transitory factors fade; market volatility to play a role in rate-hike decision; watching European experiments with negative rates, though 'not very plausible' in U.S.; 2-3 percent a plausible range for long-term U.S. GDP growth; only 'slightly' less confident in economic forecasts than few weeks ago; Washington's fiscal 'drama' not good for confidence in U.S. economy.'

New York Fed President Bill Dudley said in an interview with CNBC on Friday, 'U.S. economy is down-shifting a bit; September jobs report 'definitely weaker'; 120,000-150,000 new jobs per month sufficient to push unemployment rate down; emerging markets growth figures into fed's rate hike decision; possible that fed could hike rates this month; predicts rate hike this year based on forecasts, but not commitment; not now contemplating additional bond purchases; negative rates 'an option' but not realistic at this point; U.S. government shutdown unlikely, but would factor into liftoff decision.'

Chicago Federal Reserve President Charles Evans said, 'exact timing of rate liftoff less important than pace of hikes; could well be appropriate for rates to still be below 1 percent at end of 2016; would be 'policy error' if fed fails to communicate plan for gradual rate hike path at time of liftoff; September "somewhat weaker" jobs report does not change view that job growth is solid; want more confidence that inflation is heading higher before raising rates; if inflation rises too quickly, fed could raise rates every meeting to offset.'

The British pound erased its early gains against the greenback on Friday as data showed that the U.K. trade deficit narrowed less-than-expected in August and dampened optimism over the strength of the British economy. During the day, although cable edged higher in Asia and briefly rose above previous session high of 1.5173 to 1.5382 in European morning, price tanked to 1.5338 after disappointing UK trade balance and then lower to 1.5300 in New York before recovering.

National Statistics said that U.K. trade balance rose to a seasonally adjusted -11.15 billion pounds in August, from -12.20 billion pounds in the preceding month whose figure was revised down from -11.08 billion pounds. Market had expected U.K. trade balance to rise to -10.00 billion pounds in August.

UK's Prime Minister George Osborne said on Friday, 'risks in the global economy are rising, Britain can't be immune; still risks from Greece, commodity prices falling, debt is worryingly high in some countries; global troubles are all the more reason to deliver UK economic plan to repair public finances, improve productivity, invest in infrastructure; IMF sees UK going from second worst public finances in the g7 to second best by 2020; supports renewal of Christine Lagarde's mandate at helm of IMF; 250,000 British citizens have expressed interest in buying government's Lloyd's bank shares; UK much better prepared than five years ago to handle whatever global economy throws at it; plans his first meeting with Iranian finance minister to try to expand ties; conversation about economic ties needs to be started; hopes to visit next year; putting a load of pressure on surplus countries like Germany doesn't produce a huge benefit; Germany is part of the solution rather than part of the problem; UK should expect lower growth this year than last year, because vulnerable to what's happening in the world; must put Chinese economy in perspective, as it still is an enormous contributor to world growth; China is not the biggest risk facing the UK economy.'

Bank of Canada released Q3 Business Outlook survey on Friday. In the report, BoC said 'business sentiment remains tepid, but forward-looking indicators of business activity improved; businesses report firmer sales expectations due to positive U.S. economic outlook and weaker C$; persistent weakness in commodity prices is dampening outlook for many firms tied directly and indirectly to resource sector; intentions to increase investment more widespread, although hiring intentions remain modest overall; fewer firms anticipate difficulty meeting unexpected increase in demand, suggesting economic slack has widened recently; firms expect input and output prices to rise at faster pace, in part due to renewed upward pressure from depreciation of C$; inflation expectations continue to be concentrated in bottom half of bank's inflation-control range; indicators of labor shortages remain at low levels, pointing to continued slack in labor market; firms report tightening credit conditions over past 3 months, in particular for those exposed to energy sector; business lending conditions were largely unchanged during Q3.'

Data to be released:

France current account on Monday. Market holiday in Japan and Canada.

Australia NAB business conditions, NAB business confidence, China trade reports, Japan consumer confidence, Germany CPI, HICP and ZEW reports, Switzerland producer/import price, U.K. BRC retail sales, CPI, PPI and RPI, U.S. Redbook and Fed budget on Tuesday.

Japan CGPI, China CPI and PPI, France CPI, Italy CPI, UK average earnings, claimant count unemployment change, ILO unemployment, euro zone industrial production, Switzerland ZEW investor sentiment, U.S. retail sales and business inventories on Wednesday.

New Zealand manufacturing PMI, Australia employment change, full-time employment and unemployment rate, Japan industrial output, capacity utilization, U.S. real weekly earnings, NY Fed manufacturing, CPI and Philly Fed business index on Thursday.

New Zealand CPI, Italy trade balance, euro zone trade balance, inflation reports, Canada manufacturing sales, U.S. capacity utilization, industrial output, net long-term flows on Friday.