As liquidity started to fade, there was a EUR/USD spike higher to above 1.36 very early in the European trading session on Thursday. There was a stronger than expected reading for one of the German states’ inflation readings which triggered some speculation over a higher national release. In turn, there was some expectations that the ECB would find it more difficult to justify further monetary easing which pushed the Euro higher.
In contrast, there was a 10,000 increase in German unemployment for November, the fourth consecutive monthly rise. The latest Euro-zone money supply data was weak with M3 growth slowing to 1.4% from 2.0% previously while private lending contracted again. This data is particularly important and will certainly increase pressure for a more aggressive ECB policy.
The data did push the Euro lower briefly, but it quickly recovered ground later in the session. There was a high degree of caution with New York markets closed for the Thanksgiving holiday. The risk of erratic currency moves was increased ahead of the month-end on Friday. There was evidence of position adjustment given the shortened market sessions with traders looking to cut exposure to volatile moves.
EUR/USD consolidated around the 1.3600 level while USD/JPY pushed to highs above 102.30 before stalling as underlying yen sentiment remained negative.
In tandem with the release of its latest Financial Stability Report, the Bank of England announced that the Funding for Lending Scheme (FLS) would be scaled back for residential lending from January with a greater focus on business lending. The bank did express some reservations over the housing sector, but did not see evidence of a bubble at this stage.
Any measures to cool the housing sector should have some negative Sterling impact, but the UK currency remained resilient during the day. GBP/USD continued to draw strength from the ability to break above 1.6250 the previous day and extended gains to a peak above 1.6350. There was also a further retreat in EUR/GBP to around 0.8320.