EUR / USD
The Euro was unable to make further headway in early Europe on Thursday and posted a significant retreat. The US dollar recovered ground as domestic yields moved higher and underlying confidence in the Euro-zone remained notably fragile amid further concerns over coronavirus developments.
ECB President Lagarde stated that the step-up in PEPP will become more visible over time while risks to the growth outlook have become more balanced.
US jobless claims increased to 770,000 in the latest week from a revised 725,000 the previous week and well above consensus forecasts of 700,000. Continuing claims declined marginally to 4.12mn from 4.14mn previously, but slightly above market expectations. There was a sharp decline in pandemic assistance claims of 1.9mn on the week which helped underpin confidence in the labour-market outlook.
The Philadelphia Fed manufacturing index strengthened sharply to 51.8 for March from 23.1 the previous month. This was well above consensus forecasts of 22.5 for the month and the strongest figure for over 50 years as close to 60% of companies reported stronger activity. There was also a surge in the new orders component with a solid increase in unfilled orders. Employment increased at a faster pace of on the month and price increases also accelerated with the prices paid index strengthening to the highest level since March 1980. Companies were also notably more optimistic over the six-month outlook.
The data bolstered expectations of stronger growth and inflation pressure within the economy which also provided net support to the US dollar. The US currency posted net gains with the Euro retreating to lows below 1.1910 amid wider pressure on commodity currencies. The Euro attempted to rally, but was unable to regain traction and retreated again after the European close. The US currency continued to gain support from higher yields on Friday with the Euro around 1.1920.
US bond yields moved sharply higher in early Europe on Thursday with the 10-year yield above 1.70% and the move in Treasuries helped underpin the dollar. The US currency was unable to make a move above 109.30 which triggered a significant correction. Equity markets moved lower and the dollar settled just below 109.00.
The Bank of Japan widened the target band to plus/minus 0.25% and also made changes to the ETF buying programme. The overall impact was measured given that the measures had been leaked in advance. Overall volatility also eased during the Asian session with the yen gaining only measured support.
Markets were monitoring US-China rhetoric as the top-level meetings continued amid underlying friction over domestic and foreign policy.
Overall, the dollar posted limited net losses to 108.80 at the European open with the Euro around 129.70 as the yen maintained a slightly firmer tone.
The Bank of England held interest rates at 0.1% following the latest policy meeting and made no changes to the asset purchase programme. Both decisions were by a 9-0 vote and were in line with market expectations. The bank expressed cautious optimism over the outlook with the potential for the economy to recover more quickly than expected, although the committee also reiterated that the outlook was highly uncertain. In particular, the minutes pointed to a widespread of opinions over demand and supply conditions. The MPC reiterated that there was a high barrier to policy tightening while Chief Economist Haldane remained optimistic over the outlook.
Markets had priced in a more optimistic stance and Sterling advanced into the meeting with the UK currency drifting lower following the release.
The UK MHRA stated that the benefits of the AstraZeneca vaccine outweigh the risks which provided some relief. With the dollar also regaining ground, however, the UK currency dipped to lows at 1.3900 before a recovery while the Euro recovered slightly from 12-month lows at 0.8535 to around 0.8560.
Weaker risk appetite and an increase in US yields also hampered Sterling with choppy trading. Sterling was slightly lower on Friday as equity markets were unable to gain traction with the UK currency just above 1.3900 against the dollar amid a slightly lower than expected government borrowing requirement.
The Swiss franc gradually lost ground during Thursday amid expectations of a strong global economy. The Euro pushed to highs around 1.1085 but failed to hold the gains amid a more defensive tone in US equity markets. There were also reservations over coronavirus developments within the Euro-zone.
The dollar posted net gains but stalled just above the 0.9300 level. There was some relief over AstraZeneca vaccine developments, but the franc was able to resist selling pressure, especially with renewed restrictions in France amid a further increase in cases, and the dollar traded around 0.9270.