EUR / USD
The Euro briefly lost ground after Thursday’s European open, but there was still solid underlying buying on dips and it quickly edged higher again.
Industrial and consumer sentiment both edged lower for March and the overall business and consumer confidence index declined slightly to 99.3 from 99.8 and slightly below expectations. The data continued to suggest fragile confidence despite lower energy prices
The German consumer prices inflation rate declined sharply to 7.4% for March from 8.7% previously which was primarily due to favourable base effects after the jump in prices last year and the figure was slightly above consensus forecasts of 7.3% for the month.
There were underlying expectations of a hawkish ECB policy stance which underpinned the Euro. Euro-Zone inflation data will be released on Friday. Consensus forecasts are for the headline rate to decline sharply to 7.1% from 8.5% due to a favourable base effect, but with a marginal increase in the core rate to 5.7% from 5.6%.
The dollar performance overall was mixed with the Euro strengthening to highs at 1.0925 before a limited correction to 1.0900 at the European close.
There will be significant month-end position adjustment on Friday which is liable to lead to choppy trading, especially around the London fix.
The Euro held steady in early Europe and traded just below 1.0900 against the dollar with markets waiting for further comments from Fed officials.
US initial jobless claims increased to 198,000 in the latest week from 191,000 previously and slightly above consensus forecasts of 196,000 while continuing claims were unchanged at 1.69mn which suggested little net change in labour-market conditions.
The final estimate for the 2022 fourth-quarter GDP growth estimate was revised down marginally to 2.6% from 2.7% previously while the core PCE prices index was revised marginally higher to 4.4% from 4.3%.
There was further choppy trading in Treasuries after Thursday’s US open with yields overall edging higher.
Risk appetite remained firm which curbed any potential yen support and the dollar posted highs just below 133.00 before a correction to 132.60.
The US PCE prices index will be released on Friday with expectations that the core annual rate will hold at 4.7% for the month. A lower reading would offer some relief while a stronger than expected reading would reinforce policy difficulties for the Federal Reserve.
China’s manufacturing PMI edged lower to 51.9 for March from 52.6, but above expectations of 51.5. The non-manufacturing index posted a strong gain to 58.2 from 56.3. This was well above expectations of 54.3 and the highest reading since 2011. The data helped underpin risk sentiment and boosted the yuan.
Tokyo underlying inflation was slightly stronger than expected, but the dollar posted a strong advance to 133.50 before a correction to 132.90.
There were no significant UK data releases on Thursday with global conditions tending to dominate. Overall risk appetite held firm which provided a solid backdrop for the UK currency and the FTSE 100 index secured a further net advance on the day.
The currency was also underpinned by expectations of gains during April on seasonal grounds with traders looking to front-run expected gains
Given the favourable external environment, Sterling advanced to highs around 1.2385 against the dollar with only a slight correction later in the session.
Sterling struggled to keep pace with the Euro given expectations of a hawkish ECB policy stance and the single currency settled around 0.8810 from 0.8830 highs.
Sterling was underpinned by firm risk conditions on Friday and traded just below 1.2400 against the dollar from 2-month highs around 1.2420.
There will be scope for choppy trading on Friday with a firm overall UK currency tone if risk appetite holds firm.
The Swiss franc overall was held in relatively narrow ranges during Thursday. The solid tone in risk appetite limited potential defensive support for the currency with markets also still wary over the domestic banking sector.
The Euro settled around 0.9970 with the dollar dipping to lows near 0.9125 before a slight recovery to 0.9140 on Friday as equities held a firm tone.