EUR / USD
The Euro held a firm tone into Thursday’s New York open with the Euro moving above 1.1950 as the dollar remained generally on the defensive.
The ECB made no changes to interest rates. Bank President Lagarde stated that the overall economic situation is to improve in 2021, but uncertainty remains. She also noted that the inflation pick-up is mostly due to transitory factors, although projections also see a gradual increase in underlying inflation pressure. The 2021 inflation forecast has been revised up to 1.5% from 1.0% previously, but with only a marginal increase in the 2022 forecast to 1.2% from 1.1%.
As far as yields are concerned, he added that market rates do pose a risk to wider financing conditions and could lead to premature tightening. Although the total envelope for bond purchases was unchanged, Lagarde also stated that the pace of bond buying would be significantly faster in the next quarter with the rate of increases increasing immediately, although she denied that there was any intention to engage in a more formal yield curve control.
US initial jobless claims declined to 712,000 in the latest week from a revised 754,000 the previous week and below consensus forecasts of 725,000. Continuing claims also declined to 4.14mn from 4.34mn. There was, however, a sharp increase in pandemic assistance claims of over 2.0mn on the week with total claims over 20.0mn.
There were expectations of strong US growth, especially with a very strong fiscal stimulus with mixed implication for the dollar.
The Euro was hampered by further difficulties over the Euro-zone vaccination programme amid persistent supply difficulties. The single currency retreated to 1.1930 after the ECB PEPP move, but the dollar was unable to gain sustained support and the single currency strengthened to daily highs near 1.1980 at the European close. The Euro was unable to challenge the 1.2000 area and retreated towards 1.1950 on Friday as growth hopes underpinned the US currency.
Chinese US bond yields edged higher after the New York open as the jobless claims data maintained expectations of a strong economic rebound.
The dollar was able to gain only limited support and dipped back to just below 108.50 at the European close.
The $1.9trn economic support package was formally signed into law with individual cheques expected to be sent out shortly. Equity markets maintained a robust tone with the S&P 500 index posting a fresh record high after a 1.0% daily advance.
There were rumours that the Bank of Japan would drop the formal target for Exchange Traded Funds (ETF) funds, although the upper limited might be maintained.
US equity futures edged higher in Asia and Japan’s Nikkei index posted strong gains, although Asian markets overall were mixed. Firm risk appetite curbed demand for defensive assets which also sapped potential yen support. The dollar strengthened to the 108.85 area while the Euro edged above the 130.0 level. .
Overall confidence in UK economy remained robust during Thursday with expectations that there would be a strong recovery as lockdown measures are eased.
There was no significant market impact from the news that the Astra Zeneca coronavirus vaccine had been halted in several countries, including Norway and Denmark due to concerns over potential blood clots. There were no indications of any concerns over the UK programme.
The UK currency gradually gained ground against the US dollar with highs around 1.3980 towards the European close. Sterling was, however, unable to make further headway on the crosses despite further gains on Wall Street with a decline in the FTSE 100 index having some negative impact.
The Euro settled around 0.8565 after again finding support close to 0.8550 with Sterling also failing to advance further against the Japanese yen.
UK GDP declined 2.9% for January compared with expectations of a 4.9% decline, although there was a sharper than expected decline for industrial production. The Sterling gained marginally after the data with the Euro around 0.8560, although it was held below 1.4000 against the firmer US dollar.
The Swiss franc lost ground in early Europe on Thursday but did demonstrate some resilience later in the day despite a further advance in Wall Street indices. The Euro settled around 1.1075 while the dollar continued to decline with lows below 0.9250.
Demand for defensive currencies weakened on Friday following record highs for US indices and expectations of strong growth. The Euro edged higher to the 1.1090 area with the dollar paring losses to trade around 0.9275.