Central banks had an important market influence during Thursday, especially on second-tier currencies. There were no surprises from the Swiss National Bank (SNB) with benchmark interest rates left on hold below 0.25% at the quarterly meeting while there was no change to the Euro 1.20 minimum level.
There has been a significant shift in market sentiment with expectations that the franc will be subjected to upward pressure next year. In this environment, EUR/CHF retreated again to test crucial 1.22 support. The SNB did manage to hold the line, but was able to secure only a limited correction as USD/CHF also failed to recover the 0.89 level.
Trading elsewhere was generally lacklustre ahead of the US open with EUR/USD again failing in an attempt to break above the 1.38 area. There was consolidation around 1.3780 amid speculation that former Israel central bank Governor Fischer would be nominated as Fed Vice-Chairman.
The US retail sales data was stronger than expected with a headline 0.7% increase for November following an upwardly-revised 0.6% gain the previous month. Although led by strong auto sales, there was still a 0.4% gain for underlying sales which helped bolster optimism surrounding US spending trends.
Gloss from the retail data was taken off by a much weaker than expected jobless claims report with initial filings rising to 368,000 from 300,000 the previous week, although there were suspicions that the data had seasonal adjustment problems post Thanksgiving. The dollar overall was able to make initial headway with EUR/USD retreating to 1.3750 as USD/JPY probed the 103 area.
US Treasury bond yields moved higher with benchmark yields pushing to highs just below the 2.90% level during the US session and the dollar held firm without making any major gains.
The Australian dollar initially attempted a recovery from sharp losses seen yesterday, but AUD/USD was capped below 0.9100. Reserve Bank Governor Stevens again stated that the Australian dollar should be significantly weaker to help rebalance the economy. This time there was a numerical number attached to his verbal intervention and that AUD/USD needs to be nearer the 0.85 level.
These comments inevitably triggered heavy selling and the triggering of stop-loss selling below 0.9000, allied with the stronger US retail sales data, resulted in a sharp losses to lows around 0.8915.
Sterling was to some extent sidelined by action elsewhere with GBP/USD holding above 1.64 ahead of the New York open as EUR/GBP lost ground. The generally firmer dollar pushed GBP/USD to test 1.6350 support later in New York.