The Euro was again sold in the Asian session on Friday and dipped to lows near 1.3910 as sentiment towards the currency remained weak.
The Euro-zone money supply data was slightly stronger than expected for December, but was still weak in historic terms. The IFO institute also reported that credit fears had eased very slightly at the end of 2009.
The Euro continued to be unsettled by structural fears as sovereign debt ratings remained an important market focus. There were further concerns over a potential debt default from Greece which undermined confidence.
The US data was stronger than expected with fourth-quarter GDP reported at an annualised rate of 5.7% compared with expectations of around 4.5%. There was a sharp increase in inventories which may not be sustained and this could make the economy vulnerable to an early setback. In contrast, there was a quarterly increase in business investment which will help support expectations of a sustained recovery.
The other US data was also stronger than expected with the Chicago PMI index rising to 61.5 for January while there was also an upward revision to the University of Michigan consumer confidence index.
The data overall helped underpin dollar confidence and, with the Euro remaining under pressure, the US currency strengthened to a fresh nine-month highs beyond 1.39 with a peak near the 1.3850 level.
The Japanese data was mixed with a lower than expected figure for unemployment while the consumer spending data was slightly stronger. In contrast, there was a larger than expected decline in consumer prices while the industrial output growth was slightly below expectations as well. Overall confidence in the economy is likely to remain generally fragile which will maintain pressure on the authorities for yen gains to be resisted.
Risk appetite was generally fragile on Friday as there was further evidence of a gradual monetary tightening in Asia and the dollar was trapped below the 90 level. The Euro weakened to fresh nine-month lows against the Japanese currency.
Risk conditions attempted to recover following the US data and the US currency also gained direct benefit from rising US Treasury yields which pushed the dollar to highs near the 91 level against the Japanese currency. Risk appetite dipped again later in the US session and the dollar dipped back to the 90.25 area while the Euro reverted to the 125 region.
Sterling held above 1.61 against the dollar in early Europe on Friday while the Euro remained on the defensive. The Nationwide reported a further increase in house prices for January which had some positive impact on sentiment.
Thereafter, the UK currency was generally weaker with significant selling pressure against the dollar following the US GDP data.
Sterling will also tend to be unsettled by a deterioration in underlying global risk conditions and there was also a very cautious report on the UK banking sector from Standard & Poor’s. In response, Sterling dipped to lows below 1.60 against the dollar for the first time in two weeks while it also retreated to 0.8675 against the Euro.
Any further opinion polls suggesting the possibility of a hung parliament following the 2010 election would also tend to undermine Sterling.
The dollar found support below 1.05 against the Swiss franc on Friday and had a notably firmer tone in US trading with a high around 1.0640.
The franc was undermined by a generally firmer US tone following the data releases. There was also repeated rumours of intervention by the National Bank to stem franc strength against the Euro which pushed the Swiss currency generally weaker. The Euro found support on dips towards 1.4650 and regained the 1.47 level later in the US session.
The Swiss franc will continue to gain some support from a lack of confidence in the Euro-zone economy during the coming week.
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The Australian dollar was blocked comfortably below the 0.90 level against the US dollar on Friday and came under renewed and at times heavy selling pressure later in the day. The US dollar was generally stronger while there was also an important element of caution surrounding risk appetite.
The Australian currency dipped to a low around 0.8840 against the US dollar during the US session.