The US dollar was traded downwards on Tuesday Vs most major currencies before the FOMC meeting next week where a decision on QE tapering may be made but anyway it will be probably small, which is unlikely to support the dollar. The dollar was negatively supported by stock market decrease, which led to defensive assets growth such as the yen and Swiss franc.
There was no significant US statistics on Tuesday that could support the dollar. The US Job Openings changed little in October compared with September. On the last working day of October Job Openings amounted to 3.93 million against 3.89 million prior month. Wholesale Inventories rocketed on October by 1.4% compared with September against the expected growth by 0.3%, which was caused by the growth of agricultural inventories. It was the highest growth of inventories for two years. Wholesale Trade Sales rose by 1% m/m in October also having exceeded the expected growth by 0.3%.
The euro rose on Tuesday to 6-week high Vs the dollar. The euro has been recently supported by the growth of expectations of Banking Union creation in the euro-zone in 2014 with a possibility to close broken banks. The decision on Banking Union may be taken till the end of the year. The common currency is also supported by currency block current account surplus – and also by the fact that the stable banking system helps to decrease ECB balance which dropped by 8% this year as banks started to return funds taken within LTRO.
The Fed balance, on the contrary, rose by 1.5 times in 2013. The ECB must not provide national governments with the funds to implement structural reforms and recover banking systems, said ECB governor Mario Draghi in Rome. Another factor of euro growth is repatriation of funds by European banks for capital increase - before the ECB’s stress tests of commercial banks.
The pound updated on Tuesday its annual height Vs the dollar. Industrial and manufacturing output in the UK rose by 0.4% m/m in October having met the expectations. Manufacturing output rose by 2.7% in October at an annual rate – it is the highest annual growth since May, 2011.
The UK Trade Balance deficit fell to 9.7 billion pounds in October, which turned out slightly worse than expected decrease to 9.2 billion. RICS House Price Balance rose to 58% in November, the highest level since September, 1999. NIESR raised the UK GDP growth estimate for the last three months to 0.8% against 0.7% prior month.
The yen strengthened on Tuesday after reaching 5-year low Vs the euro and the pound amid the stock markets decrease and risk aversion growth – which led to the growth of other defensive assets. Swiss franc grew to 2-year high against the US dollar and to 7-month high Vs the euro before the meeting of the National Bank of Switzerland, its results will be announced on Thursday. Commodity currencies strengthened amid weakening dollar and commodity assets growth.