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The Euro secured an element of relief on Friday following the re-starting of the AstraZeneca vaccination programme in Germany, Italy and France. There were still only very limited gains amid fragile confidence in the underlying Euro-zone outlook, especially with on-going supply issues surrounding the vaccine programme.
Just after the New York open, the Federal Reserve announced that exemptions surrounding the supplementary Leverage Ratio (SLR) would not be extended and would expire on March 31st. Markets had been focussed on this issue for several weeks amid fears that the reversion to previous rules would trigger sharp selling of US Treasury bonds and put upward pressure on yields, especially if foreign selling also remained a significant feature.
Yields did move higher on the announcement and there were sharp dollar gains which pushed the Euro below the 1.1900 level with lows at 1.1875.
The dollar was unable to sustain the advantage and the Euro was able to crawl back above the 1.1900 level late in the European session.
Markets will be watching the latest Euro-zone PMI business confidence releases close on Wednesday to assess the impact of on-going coronavirus restrictions.
CFTC data recorded a further decline in long Euro positions to 90,000 contracts in the latest week from 102,000 previously and the lowest position since June 2020.
The dollar opened higher at the Asian open and the Euro was also undermined by a slump in the Turkish lira after President Erdogan dismissed the central bank governor. The lira traded over 15% lower and the Euro traded retreated to near 1.1870 before edging higher. Commodity currencies were unable to make any headway which limited the potential for overall dollar selling and the Euro was held around 1.1880 with markets continuing to monitor yield trends closely.


There was little sustained reaction to the Bank of Japan policy meeting with investors tending to focus on trends in US yields given the greater impact on exchange rates. The yen was unable to gain sustained support despite a limited net increase in Japanese yields with dollar support near 108.60.
Markets were continuing to monitor the US-China meetings with the talks described as serious by the US State Department. There were some concerns that tough rhetoric would trigger a retreat in risk assets which would also tend to support the yen.
CFTC data recorded a sharp switch to a net short yen position of 39,000 from a long position of 7,000 the previous week amid evidence of position capitulation. This was the first net short yen position since March 2020 and will tend to lessen the potential for further yen selling.
Richmond Fed President Barkin stated that the dot plot is not Fed policy and that higher yields reflected confidence in the outlook amid underlying confidence in the outlook. Bank of Japan Governor Kuroda stated that the 2% inflation target is helping to stabilise rates and must be maintained.
The yen overall was resilient with the dollar around 108.75 in early Europe and the Euro retreating towards 129.0 amid a less confident tone in risk appetite.


Sterling held a firm tone in early Europe on Friday but gradually lost support during the day. There were some reservations over a slowdown in the vaccination programme during April, although the UK was still on track to meet its target of vaccinating all adults by the end of July.
The Euro declined to re-test 12-month lows at 0.8535 before a recovery to around 0.8585. As US yields spiked higher, the Sterling declined sharply to lows at 1.3830 against the dollar before a tentative recovery to around 1.3870 at the European close with overall volatility levels increasing.
For the second week running, CFTC data recorded a small decline in long Sterling positions with a dip to 29,000 contracts from 34,000 previously amid a cooling of buying. The UK recorded its highest daily vaccine count on Saturday, maintaining confidence in the underlying programme, but there were further concerns over UK/EU tensions surrounding vaccine supplies amid another threat to limit exports to other countries, including the UK. Sterling was held just below 1.3850 against the dollar.


The Swiss franc edged lower against the Euro on Friday with the single currency settling around 1.1065. The dollar also posted sharp gains to 0.9320 before a retreat to 0.9290 amid a firm US tone. The Swiss National Bank is not expected to make any policy changes at this week’s quarterly meeting, but there will be an element of caution given the importance of bank rhetoric on the Swiss currency.
The Swiss franc briefly gained support from the Turkish lira slide, but the currency edged lower during the Asian session with the dollar trading just above 0.9300.



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