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Overall confidence in the Euro-zone outlook remained weak during Monday, illustrated by reports that Italy was set to cut its GDP forecasts with 2021 growth cut to 4.1% from 6.0%. There was minor relief following comments from the French Prime Minister that there were no plans to change restrictions on shops and businesses at this stage. The Euro, however, was unable to make significant headway as underlying sentiment remained negative. There were further expectations that the Euro-zone would substantially underperform relative to the US and yield spreads remained negative for the single currency as the Euro drifted lower.

ECB council member de Cos stated that it was vital to maintain an accommodative monetary policy. ECB data recorded bond-buying of EUR18.95bn from EUR21.05bn the previous week, but above the figure two weeks ago as the bank sustained the faster rate of purchases to help keep yields down.

The US Dallas manufacturing index strengthened to 28.9 from 17.2 previously and well above consensus forecasts while there was strong growth in orders and increased inflation pressures. There were expectations that there would be a strong employment report on Friday which would boost confidence in the outlook.

Markets will remain wary over month-end position adjustment over the next 36 hours, although there are no indications that there will be major currency moves.

The dollar posted fresh 4-month highs on Tuesday with the Euro remaining under pressure and around 1.1760 despite limited net gains for commodity currencies.



The dollar was unable to make headway in early Europe on Monday, but the US currency gradually gained traction during the day as the yen lost wider support.

There was an important element of uncertainty surrounding hedge funds Archegos Capital and further potential losses for global investment banks.

US equity markets were, however, broadly resilient with only slight losses for the S&P 500 index which limited potential yen demand. US bond yields also moved significantly higher which underpinned the US currency during the session.

Bank of Japan Governor Kuroda stated that the central bank won’t end ETF purchases or unload existing holdings. He also reiterated that the bank will monitor market developments closely. The bank is scheduled to release revised bond-purchase details on Wednesday.

US yields continued to move higher in Asia on Tuesday with the 10-year yield at 14-month highs near 1.75% which provided further dollar support. In this environment, the dollar tested the 110.00 level for the first time in over 12 months while the Euro traded around 129.30.



UK mortgage approvals declined to 87,700 for February from 99,000 the previous month and below consensus forecasts of 95,000 amid uncertainty whether the increased stamp duty thresholds would be sustained beyond the end of March. The data was mixed as there was a strong increase in mortgage lending of £6.2bn for the month and the strongest figure since March 2016. There was a further decline in personal lending of £1.25bn for the month as consumers continued to repay debts with an annual decline of 9.9%, the sharpest decline since the series started in 1994. Sterling failed to hold above 1.3800 against the dollar.

Sterling maintained a strong tone in early Europe with the Euro sliding to fresh 12-month lows just above the 0.8500 level amid Euro-zone reservations.

Bank of England Monetary Policy Committee (MPC) member Vlieghe stated that rapid growth is needed to close the gap compared with the pre-pandemic growth path. In this context, he noted that a few quarters of good growth would not imply that the central bank can put on the brakes and tighten policy. He added that any increase in inflation would not be enough this year to say that the economy does not require monetary support.

The UK currency faded slightly from its best levels and settled below 1.3800 against the dollar on Tuesday while the Euro traded around 0.8540.  


Swiss sight deposits declined slightly to CHF702.7bn in the latest week from CHF702.9bn the previous week which continued to indicate that the National Bank had not been intervening during the week. The Swiss franc lost ground in Europe on Monday with a further loss of support from low-yield instruments as US bond yields increased. The yen also remained generally vulnerable which limited support for the Swiss currency.

The Euro advanced to highs near 1.1080 before a retreat to 1.1050 while the dollar was unable to hold above the 0.9400 level. The dollar held just below 0.9400 on Tuesday with the Euro around 1.1050 as franc selling eased to some extent with markets monitoring and contagion from the US hedge fund liquidation.



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