EUR / USD
The German trade surplus declined to EUR19.1bn for February from EUR21.2bn the previous month with the increase in exports held to 0.9% on the month.
The Euro was unable to hold above the 1.1900 level against the dollar on Friday and gradually lost ground into the New York open.
US producer prices increased 1.0% for March after a 0.5% increase the previous month and above consensus forecasts of 0.5%. The year-on-year increase strengthened to 4.2% from 2.8%, the strongest increase for over 9 years while underlying prices increased 3.1% over the year from 2.5% previously.
Fed Vice-Chair Clarida stated that substantial progress means actual progress, reiterating the comments from other officials. He also stated that there was still a big hole in the labour market. There were potentially significant comments on inflation as he added that if inflation at the end of the year has not declined from where it is at the middle of the year that might be good evidence that inflation is not transitory. The implications would be that the central bank would be looking to withdraw some stimulus if that was the case. This opened the dollar to a slightly more hawkish interpretation, although the immediate market impact was limited.
Relatively narrow ranges prevailed with the Euro settling just below 1.1900.
CFTC data recorded a small further decline in long Euro positions to 68,000 contracts in the latest week from 74,000 previously. The dollar edged higher on Monday as commodity currencies drifted lower and the Euro traded around 1.1890 as tight ranges prevailed ahead of Tuesday’s US consumer prices data.
US bond yields moved higher following the producer prices data with the 10-year rate hitting highs around 1.68% which provided net support to the US currency. The dollar pushed to highs just below the 110.00 level, but was unable to break above this level.
Dallas Fed President Kaplan stated that the Fed should not be too pre-emptive or too reactive while excessive accommodation for longer than needed would have side effects. US yields faded later in the European session and the dollar retreated to the 109.65 area as caution prevailed.
CFTC data recorded an unchanged short yen position in the latest week as yen selling pressure subsided, but there will still be the potential for short covering.
Fed Chair Powell stated that re-opening the economy too quickly was a principal risk and that the central bank will provide support until the recovery is complete. He noted that the bank wants inflation moderately above 2.0% for some time, but does not want it materially above 2% or a return to the bad old days. There were further uncertainties about whether the tough balancing act would be achievable. The yen held a firm tone on the crosses with the dollar close to 109.50 in early Europe.
Halifax reported an increase in hose prices of 1.1% for March after being unchanged the previous month with an annual increase of 6.5% from 5.2% previously.
Sterling was unable to make significant headway on Friday as underlying confidence remained notably more fragile. There were fresh reservations over the UK vaccine programme amid an expected slowdown in short-term deliveries. There was also further evidence of Euro short covering during the day.
The UK currency dipped to test 2-month lows at 1.3670 before attempting a recovery while the Euro hit 2-week highs just below 0.8700 before a limited correction.
CFTC data recorded a small decline in long Sterling positions. Next week’s data will be watched closely given the sharp Pound Sterling retreat just after the latest data was compiled. Overall market sentiment remained cautious given the slide in spot values recorded last week.
The Friday and weekend news agenda was dominated by the death of the Duke of Edinburgh with little attention on coronavirus developments. The re-opening of non-essential retail on Monday will maintain optimism over the near-term outlook, but Sterling was unable to gain any support and traded below 1.3700 against the dollar in early Europe with the Euro around 0.8695. Reports that the EU and UK were close to agreeing a Northern Ireland trade arrangement failed to provide support.
The seasonally-adjusted Swiss unemployment rate edged lower to 3.3% for March from 3.4% previously and below consensus forecasts of 3.5%. The Swiss franc maintained a firm tone during Friday with the Euro continuing to test the 1.1000 area against the franc while the dollar was unable to make any significant headway.
Global yield trends will continue to have an important impact in the short term. There were slightly more cautious risk conditions on Monday, but the Euro found some support close to 1.1000 with the dollar nudging higher to the 0.9260 area as tight ranges prevailed.