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The Euro-zone retail sales increased 3.0% for February, above expectations of a 1.5% increase with an annual decline of 2.9% from 5.2% previously.

The Euro held a firm tone ahead of the New York open, although there was resistance close to 1.1920 against the dollar as narrow ranges prevailed amid a lack of direction. German Chancellor Merkel stated that infection rates are too highs and that the third wave may be the toughest. There were reports that the lockdown restrictions were due to be extended for a further three weeks and Merkel warned that measures would need to be tightened.

The dollar was unable to gain significant backing on positioning grounds given that short positions have been cut for 12 weeks in succession.

There was an increase in ECB PEPP bond purchases for the latest week, although the figure is still running below the bank’s target of EUR80bn per month.

There was an element of caution ahead of the Tuesday US CPI release given the potential impact on US Treasuries, Federal Reserve policy expectations and currency markets. Consensus forecasts are for a 0.5% increase in prices for the month with a jump in the year-on-year rate to 2.5% from 1.7%. Core prices are expected to increase 0.2% to give an annual increase of 1.5% from 1.3% previously.

Stronger than expected readings would trigger expectations that the Federal Reserve would be forced into an earlier than expected tapering of bond purchases.

Boston Fed President Rosengren stated on Monday that an interest rate hike is still at least two years away and a weak release would undermine the dollar.

The dollar posted net gains on Tuesday as yields increased with commodity currencies also losing ground and the Euro moved back to just below the 1.1900 level.



Chinese new loans increased CNY2730bn for March from CNY1360bn the previous month and above consensus forecasts of CNY2450bn. M2 money supply growth slowed to 12.6% from 12.9% previously. The data offered some reassurance over underlying credit trends.

The dollar continued to drift lower into the New York open, but yields moved higher in early US trading with the dollar edging back towards 109.50. Overall risk conditions were slightly more cautious which continued to provide an element of yen support. Reports indicated that Treasury Secretary Yellen will not name China as a currency manipulator which protected risk appetite. For the first quarter of 2021, China reported an annual increase in exports of 38.7% with an increase in imports of 19.3%.

Bank of Japan governor Kuroda stated that the loose monetary policy will continue for a long time and that a weaker yen will provide support to the economy.

US yields moved higher to near 1.70% which underpinned the US dollar and there was a net advance to 109.65 against the Japanese currency.



Sterling continued to post gains in early Europe on Monday with support deriving from the ability to hold important support levels against the dollar and Euro. From lows at 1.3670, the UK currency recovered to above 1.3750 while the Euro retreated to below 0.8650 from near 0.8700.  

There were also hopes that the partial re-opening of the economy would help underpin the recovery and support Sterling sentiment.

Prime Minister Johnson stated that there were still significant differences with the EU over the Northern Ireland protocol. Overall confidence in the UK currency remained fragile amid expectations that a robust recovery had already been priced in.

There were no comments on monetary policy from Bank of England member Tenreyro and Sterling retreated from its best levels as it failed to hold above 1.3750 against the dollar. There was an element of on-going support from the UK vaccination programme with all over 50s and vulnerable groups offered a vaccination. UK GDP increased 0.4% for February, slightly below consensus forecasts, although there was a stronger than expected recovery for industrial production. There was only limited recovery in trade volumes for the month. The data failed to generate significant Sterling traction as it traded near 1.3750 with the Euro around 0.8655.



Swiss sight deposits declined to CHF701.3bn for the latest week from CHF701.8bn the previous week which continues to indicate that the national bank was not engaged in currency intervention. There will, however, be some speculation that the central bank will look to defend the 1.1000 level against the Euro. 

The Euro, however, dipped below this level and the franc secured fresh support late in Europe with the franc gaining some support from a retreat in equity markets. Speculation that Switzerland would be removed from the US list as a currency manipulator had little impact with the Euro still below 1.1000 and the dolalr below 0.9250.



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