EUR / USD
The Euro-Zone Sentix investor confidence index improved to –8.7 for April from –11.1 previously and slightly stronger than consensus forecasts of -9.9.
According to Sentix, the major upheavals feared as a result of the gas and electricity price crisis in Europe failed to materialise this winter, but it reiterated that there was no reason to sound the all-clear. Overall confidence was still weak in historic terms.
The US NFIB small-business confidence index edged lower to 90.1 from 90.9 previously, but slightly above consensus forecasts.
The Euro held a firm tone ahead of the US open but was unable to move above the 1.0930 area and drifted lower later in the session as the dollar regained losses.
The latest US consumer prices data will be important for the Federal Reserve and markets on Wednesday.
Consensus forecasts are for the headline inflation rate to decline sharply to 5.2% from 6.0% with favourable base effects having an important impact in cutting the rate.
Core prices are forecast to increase 0.4% on the month with the annual rate edging higher to 5.6% from 5.5%. Higher than expected data, especially for core prices would reinforce expectations that the Fed will have to be more aggressive in raising interest rates and potentially support the dollar.
ECB council member Villeroy stated that the bank faces the risk of entrenched inflation and that the bank is fully committed.
Hawkish rhetoric underpinned the Euro and it traded close to 1.0925 against the dollar in early Europe on Wednesday as caution prevailed.
Chinese new loans increased CNY3890bn for March after a CNY1810bn increase the previous month and well above consensus forecasts of CNY330bn. Overall total social financing also increased CNY5380bn for the month from CNY3160bn and also well above expectations. There was also evidence of a strong rebound in construction activity. The data will maintain expectations of a strong rebound in the Chinese economy which also helped support risk appetite.
New York Fed President Williams stated that inflation is still way above the 2% goal. According to Williams, there has been no movement in core inflation outside the housing sector which makes the job difficult. He did add that monetary policy is somewhat restrictive now while there has been some slowing in labour demand but it is still strong. He did, however, add that the Fed will have to lower interest rates if inflation falls.
Philadelphia head Harker stated that it is disappointing that data shows disinflation is proceeding slowly but added that the bank is seeing promising signs that Fed actions are working. He also stated that the bank will determine what if any additional action may be needed. Markets are pricing in a 70% chance of a May rate hike.
US yields moved higher after the New York open and the dollar strengthened to highs around 133.75 against the yen.
The dollar posted highs just above the 134.00 level in Asia on Wednesday before edging back to the 133.75 area ahead of the US inflation data.
There were no major data releases on Tuesday with Sterling initially posting gains as London markets re-opened from the Easter holidays. UK equities posted gains and solid overall risk conditions helped underpin the currency with reduced expectations of UK recession also supportive.
The Treasury announced that Megan Greene would be appointed to replace Tenreyo on the Monetary Policy Committee from July. Her public comments indicated that she would be a centrist or relatively hawkish member on the committee and certainty more hawkish that Tenreyro.
The IMF raised its UK outlook in the latest update, but still expects that the economy will contract this year and that the UK will be the worst performer in the G20.
Sterling peaked just above 1.2450 against the dollar before drifting lower while the Euro edged higher to 0.8780.
Markets will be monitoring comments from Bank of England Governor Bailey on Wednesday with Sterling edging higher to 1.2435 against a slightly weaker dollar.
Total Swiss sight deposits declined sharply to CHF532.2bn in the latest week from CHF563.6bn previously. The sharp decline suggested that liquidity conditions in the banking sector had improved substantially with an easing of the banking-sector squeeze.
The franc posted net gains on the day with the Euro retreating to near 0.9850 while the dollar dipped sharply to 0.9030 and failed to regain ground on Wednesday.