EUR / USD
The Euro maintained a strong reading after Thursday’s European open and it continued to trade around 1.1000 against a generally soft dollar.
ECB council member Vasle stated that the central bank is considering a 25 or 50 basis-point rate hike for the May policy meeting.
US initial jobless claims increased to 239,000 in the latest week from 228,000 previously which was above consensus forecasts of 232,000 and the second-highest reading of the year. Continuing claims declined slightly to 1.81mn from 1.82mn the previous week.
Producer prices declined 0.5% for March compared with expectations of a small increase and the year-ion-year rate declined sharply to 2.7% from 4.9% previously. Core prices declined 0.1% with the annual rate slowing to 3.4% from 4.8% previously and this was the lowest reading since April 2021.
The latest data releases reinforced market expectations that the labour market was cooling and that inflationary pressures were receding, especially with the weak PPI data. This is particularly evidence in the goods sector while there are still reservations over the services sector.
The data also increased expectations that the Federal Reserve would be able to adopt a less aggressive monetary policy stance with rate cuts before the end of 2023. Although there was only a marginal shift in expectations surrounding the May Fed meeting, the dollar posted sharp losses with the currency index sliding to just below 2023 lows with the weakest reading for close to 12 months.
Markets were continuing to monitor yield spreads with the gap between US and German yields narrowing to near 100 basis points and the narrowest gap since August 2021. The Euro strengthened to 12-month highs close to 1.1070 against the dollar before a slight correction.
Bundesbank head Nagel stated that core inflation is very high and reiterated that another ECB rate hike is due in May.
The dollar remained under pressure on Friday with the Euro around 1.1070 and touching fresh 12-month highs ahead of the latest US retail sales data later in the day.
JPY
The dollar maintained a firm tone into Thursday’s New York open with further expectations that the Bank of Japan would maintain a very loose monetary policy in the short term. The dollar was, however, held below 133.50 amid fragile underlying sentiment.
Treasuries were able to make headway after the US data releases with the 2-year yield trading below 4.00%. The dollar posted sharp losses with a slide to lows close to the 132.00 level before a limited correction. As equities posted strong gains, the dollar rallied further to around 132.70.
Bank of Japan rhetoric remained dovish, but the dollar was held around 132.50 against the yen amid the soft overall tone. As well as the retail sales data, the US will also release the latest consumer confidence data while comments from Fed speakers will continue to be watched closely.
GBP
Sterling held steady after Thursday’s European open with limited market reaction to the weaker than expected GDP data.
Bank of England chief economist Pill stated that high-frequency indicators suggest that momentum in wage developments appear to be easing. He added that the latest data is somewhat disappointing, but still much better than central bank forecasts from late last year. He warned that inflation may be bumpier than expected, but still expects a sharp reduction in the second quarter, primarily due to very favourable base comparisons.
Money markets priced in around a 65% chance that the BoE will raise rates to 4.50% at the May policy meeting.
With the dollar under renewed pressure, Sterling strengthened to highs around 1.2535 against the dollar.
The Euro posted net gains to highs near 0.8840 before a limited correction as yield spreads underpinned the single currency.
Sterling traded at fresh 10-month highs just below 1.2550 on Friday as the dollar maintained a soft tone with the Euro around 0.8825 as equities held steady.
CHF
The Swiss franc continued to post gains on Thursday despite firm risk conditions. Lower global bond yields were significant in underpinning the currency and the Euro dipped to lows at 0.9800 despite wider strength. The dollar posted further losses to 0.8860 and the weakest level for more than two years.
The Euro secured only a marginal recovery on Friday with the dollar close to 27-month lows near 0.8880.
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