After exploding into life during Thursday, markets had a much more subdued tone on Friday with little in the way of fresh action. Further weather-related warnings in the UK and a heavy snowstorm in the North East United States contributed to the lack of volume and subdued price action.
The main overnight action was on the yen with the Japanese currency regaining further ground. A combination of failure at resistance around 105.40 and a more risk averse tone triggered profit taking on USD/JPY and lows near the 104.0 level. The yen also strengthened on the crosses as EUR/JPY tested the 142 support area.
The latest Euro-zone money supply and lending data was again weak with private-sector lending registering an annual decline for the 19th successive month and the overall decline was at a record pace. Lending to Italy was particularly weak despite some evidence of recovery in the latest PMI data.
In contrast, there was a much higher than expected fall in Spanish unemployment which helped maintain the yield compression seen during Thursday, although the overall market reaction was limited given contradictory signals from the Euro-zone economies.
EUR/USD initially made a half-hearted attempt on support in the 1.3625 area with recoveries stalling quickly and well below the key 1.37 area. USD/CHF found support just below 0.90 and pushed higher again which helped EUR/USD retreat again to near 1.36 during the New York session. Markets were waiting for comments from Fed officials and the return to more normal liquidity conditions on Monday before committing additional funds and taking on more aggressive positions.
The UK construction PMI index was broadly in line with expectations at 62.1 from 62.6 the previous month with another very solid monthly report despite a slight slowdown from the previous release. There was a further increase in consumer lending and a particularly strong reading for the latest Nationwide house-price index, but the data for business lending was weak and at the lowest level since 2011.
This combination will maintain fears over an unbalanced and potentially short-lived improvement in growth. The initial Sterling reaction was limited, but the GBP/USD failure to regain 1.65 triggered renewed selling pressure and a retreat to fresh two-week lows just below 1.64.