EUR / USD
The German IFO business confidence index strengthened to 96.6 for March from a revised 92.7 previously and significantly above consensus forecasts of 93.2. The current conditions component increased to 93.0 from 90.6 with a stronger increase in the expectations index to 100.4 from 95.0 in February.
Italian Prime Minister Draghi called for increased EU fiscal spending over the next few months with doing too little a bigger risk than doing too much.
Concerns over Euro-zone coronavirus developments continued with Germany classifying France as a high-risk area which limited any benefit from the German data.
The Euro edged higher following the data, although underlying confidence remained very fragile amid on-going concerns over the outlook.
US personal income declined 7.1% for February after a strong 10.1% surge the previous month and close to expectations while personal spending declined 1.0%.
The core PCE prices index increased 0.1% for February, in line with market expectations and the year-on-year rate declined slightly to 1.4% from 1.5%.
The University of Michigan consumer confidence index was revised up to 84.9 from the flash reading of 83.0 and optimism over the growth outlook remained strong.
The dollar faded slightly as risk appetite strengthened with a net advance for commodity currencies, but the Euro hit selling interest just above 1.1800.
CFTC data recorded a slight increase in long Euro positions in the latest week, maintaining the potential for a renewed increase in Euro selling if the spot rate fails to recover. The Euro was unable to gain significant support on Monday amid further tensions in Germany over coronavirus restrictions. The single currency traded around 1.1775 and very close to four-month lows as the US dollar also maintained a strong tone in global markets.
Overall risk conditions improved during Friday which dampened demand for defensive currencies and the Japanese yen lost ground. Although there was only a slight net increase in bond yields, the dollar strengthened sharply to 12-month highs around 109.95 before a limited correction.
The US goods trade deficit widened to $86.7bn for February from $84.6bn the previous month with exports declining at a faster rate than imports. The data reminded markets that the US dollar could be potentially vulnerable to unease over wide trade and budget deficits.
According to the latest CFTC data, there was a further increase in yen short positions to 53,000 contracts in the latest week from 39,000 previously. This was the largest short yen position for 13 months, lessening the potential for further selling.
Trade Representative Tai stated that the US isn’t ready to lift tariffs on Chinese imports soon which helped dampen risk appetite and US equity futures moved lower. The dollar settled around 109.50 with the Euro close to 129.0 against the Japanese currency.
Sterling maintained a solid tone in early Europe on Monday and gradually gained traction during the day. Bank of England MPC member Saunders stated that it was possible that the bank’s central outlook for possible performance in the year ahead may have been too negative. He also stated that the unemployment rate was likely to peak at a significantly lower rate, but there was major uncertainty over the amount of spare capacity in the economy. The overall demand/supply balance will be crucial for the policy outlook over the medium term. There was greater optimism over the economic recovery as the UK edged towards an easing of restrictions.
The firmer tone surrounding risk appetite also provided net support, especially with gains in commodities. The UK currency tested resistance above 1.3800 while the Euro dipped to test support below 0.8550 with Sterling unable to break through the resistance area.
CFTC data recorded a further decline in long Sterling positions to 22,000 for the latest week from 29,000 which suggests a further cooling of hedge fund interest. Sterling failed to make headway on Monday amid a more cautious risk tone. GBP/USD dipped to 1.3760 and there will be month-end adjustment over the next few days.
The Swiss franc was undermined by firmer risk conditions during Friday as the yen also remained out of favour with markets using low-yield instruments as funding currencies. The Euro strengthened to highs just below 1.1100 before stalling while the dollar posted 8-month highs near 0.9420 before fading.
Euro-zone vaccine developments will still be watched closely in the short term amid a lack of confidence in the near-term outlook.
The franc drew an element of support from a less confident risk tone on Monday with the dollar trading close to the 0.9400 level.