EUR / USD
The Euro continued to recover ground after Wednesday’s European open with a move back above the 1.10000 level against the dollar helping to underpin confidence.
German consumer confidence improved to -25.7 for May from -29.3 previously and slightly stronger than expected.
ECB vice-president de-Guindos stated that the rate of wage settlements is going to accelerate and that the labour market is strong. Markets expect that the ECB will maintain a generally hawkish policy stance, although market expectations are that the bank will limit the May rate hike to 25 basis points with only a 20% chance of a 50 basis-point rate hike. Longer-term rate expectations will be important for the Euro.
As the dollar gave back Tuesday’s gains and dipped sharply, the Euro posted a strong advance to fresh 12-month highs at 1.1095.
Equities, however, came under renewed pressure later in the session which triggered fresh defensive dollar demand. In this environment, the Euro retreated to near 1.1030. Risk conditions were slightly more settled on Thursday with the Euro trading just above 1.1050.
The latest US data will be watched closely on Thursday with the jobless claims important even if the GDP data is the immediate market focus.
There will be some element of month-end position adjustment during the day, especially with a forthcoming holiday weekend in much of Europe.
The dollar was unable to make any headway after Wednesday’s European open and lost ground amid reservations over the US outlook.
US durable goods orders increased 3.2% for March after a revised 1.2% decline for the previous month and significantly above consensus forecasts of 0.7%. The gains were, however, led by the volatile transport sector and the increase in underlying sales was held to 0.3% after a 0.3% decline the previous month.
The US goods trade deficit narrowed sharply to a 4-month low of $84.6bn for March from $92.0bn the previous month with a significant gain for exports and a decline in imports. The trade position should provide a small lift to the first-quarter GDP estimate.
US Treasuries overall were little changed with the 10-year yield holding around 3.40%.
The dollar rallied sharply after the US data and spiked to highs just above 133.90, but failed to hold the gains and there was a fresh slide later in the session.
As equities came under pressure, the dollar dipped to test the 133.00 level before a recovery to 133.50.
The Bank of Japan will release its latest policy decision on Friday with consensus forecasts of no change in policy, although markets are wary over the potential for a limited tweak in the yield curve control programme which could lead to volatility. US yields edged higher on Thursday with the dollar around 133.70.
The CBI retail sales survey recorded a small improvement to 5 for April from 1 the previous month and above expectations of zero. Retailers, however, expect a small decline in sales for May with underlying caution still the dominant influence.
Markets remain confident that the Bank of England will increase interest rates again at the May policy meeting.
The domestic impetus was limited during the day with markets monitoring risk conditions closely. An attempted rally in equities and a weaker dollar triggered a Sterling move to highs at 1.2515 against the US currency, but there was a fresh setback later in the session as equities moved lower again and risk appetite deteriorated.
The UK currency dipped back below the 1.2500 level while the Euro secured a limited net advance to 0.8855.
Risk conditions stabilised on Thursday with Sterling trading around 1.2475 against the dollar with the Euro creeping higher.
There is the potential for position adjustment over the next two days, especially with May seasonal trends less favourable for the Pound.
The Swiss ZEW economic expectations index recovered to -33.3 for April from -41.3 previously and slightly stronger than expected as immediate fears surrounding the Credit Suisse situation helped underpin confidence. The franc, however, was unable to gain sustained support despite a fresh slide in risk appetite.
The Euro recovered to the 0.9840 area while the dollar dipped to 26-month lows near 0.8850 before a recovery back above 0.8900 to trade around 0.8910.