EUR / USD
There was a small downgrade to the German PMI services sector index, but the Italian sector contracted less than expected and the final Euro-zone services index reading was revised to 45.7 from the flash reading of 44.7. The Euro was unable to hold above the 1.2100 level and dipped to lows just below 1.2050.
There were reports that the ECB sees no need for drastic action to cap bond yields with the risk manageable via verbal intervention and flexibility in bond purchases. Bundesbank head Weidman stated that the central bank is ready to react to unwarranted tightening, although the size of the yield move was not particularly worrisome.
US ADP employment data recorded an increase in private-sector payrolls of 117,000 for February and below consensus forecasts of 175,000, although the January increase was revised higher to 195,000 from 174,000.
The US PMI services-sector index was revised higher to 59.8 from the flash reading of 58.9.The ISM services index, however, declined to 55.3 for February from 58.7 previously and below consensus forecasts of 58.7. There was a sharp slowdown in new orders growth with production growth also slowing while the rate of employment growth was also weaker. The rate of price increases accelerated significantly on the month, reinforcing market reservations over the risk of higher inflation.
The dollar was unable to hold the best levels and weakened into the European close amid two-way trading as markets monitored bond yields.
The Federal Reserve Beige Book stated that economic activity expanded modestly and that there were mixed developments in employment and prices. The dollar overall was held in relatively narrow ranges as growth expectations provided some support and the Euro was just above 1.2050 in early Europe on Thursday.
Comments from Fed Chair Powell will be watched very closely later in the day with the bond-market reaction crucial for the US dollar moves.
The dollar held a firmer tone into Wednesday’s New York open with the US currency posting fresh 7-month highs around 107.15. The weaker than expected US data releases sapped dollar support to some extent even though there was an element of defensive support. Overall, the US currency dipped back below the 107.00 level.
Chicago Fed President Evans stated that real unemployment is at least 9.0% and did not see a risk of inflation rising quickly. He added that an inflation rate of 3% would not be a real problem. He also insisted that there would be no thought of a taper until substantial improvements are seen towards the Fed’s goals. Philadelphia head Harker stated that a rate increase may happen towards the end of 2023.
The Senate will continue to discuss the $1.9trn fiscal support package and there could be a vote on Thursday, maintaining expectations of strong economic support. Overall, the dollar held just above the 107.00 level in early Europe with the Euro just above 129.0 as equity-market losses curbed further yen selling.
The UK PMI services-sector index was revised slightly lower to 49.5 from 49.7 and remained in contraction, although business sentiment was very firm with the strongest reading in confidence since December 2006 while the rate of employment losses slowed. Sterling drifted into the budget release as global market moves dominated.
There were no major surprises in the package with existing support measures extended until the end of September. There was a sharper increase in corporation tax from 2023, but the Chancellor unveiled measures to boost investment. The OBR also forecast that the economy would recover the pre-covid output level by mid-2022 compared with the end of 2022 previously. Overall reaction was muted with the UK currency edging higher as markets also monitored global risk conditions closely.
Money markets priced in a 0.1% increase in interest rates by September 2022 which provided some currency support. Bank of England chief economist Haldane stated that he wants households to spend pent-up savings and expects pretty robust bounce back for the economy.
Sterling was held below 1.4000 against the dollar and settled above 1.3950 on Thursday with the Euro edging lower to 0.8640 as overall Sterling sentiment held firm.
Swiss consumer prices increased 0.2% for February, below consensus forecasts of 0.4% with the year-on-year rate held at -0.5% and below expectations of -0.3%. The data will sustain National Bank reservations over the potential deflation risks and increase pressure for the bank to maintain negative interest rates.
The franc overall lost ground with the Euro advancing to the 1.1080 area after a marginal 17-month high at 1.1100 while the dollar approached 0.9200 before stalling.
Global bond yields moved higher which curbed franc demand, although there were reservations over risk conditions with the dollar just below 0.9200 on Thursday.