EUR / USD
Euro-zone industrial production declined 1.0% for February, close to expectations, with a 1.6% annual decline. The dollar overall was unable to gain any traction ahead of the New York open with the Euro holding firm amid expectations that US real interest rates would remain negative.
The Euro was also supported by hopes that EU vaccine rates would improve strongly this quarter.
US import prices increased 1.2% for March to give an annual increase of 6.9% from 3.0% previously, maintaining some concerns over the risk of imported inflation.
Fed Chair Powell stated that it was highly unlikely that interest rates would be increased before the end of 2022, although the decisions will be outcome-based. He again commented that the Fed wanted inflation marginally above 2% for a long time. It was also possible to get a low unemployment rate without increasing inflation and Powell also noted that it was essential to have the needs of people at the economic margin in mind.
He reiterated that the central bank would be likely to taper bond purchases well ahead of any increase in interest rates.
There was no shift in the underlying dovish rhetoric and the dollar remained on the defensive following the comments as it retreated to fresh 3-week lows. Futures prices indicated a slightly reduced chance of rate increases by the end of 2022 which stifled dollar support. Vice-Chair Clarida stated that inflation expectations are crucially important and that a persistent drift higher in expectations would indicate that policy needs to be adjusted. He also suggested that economic projections and Powell’s press conference will provide information to determine whether sufficient progress has been made. Commodity currencies posted strong gains and the Euro pushed to highs near 1.1990. The dollar recovered slightly on Thursday amid credit concerns with the Euro near 1.1975.
US yields edged higher on Wednesday, although the dollar overall was unable to secure significant traction ahead of the New York open. Overall, the dollar dipped to lows around 108.75. Risk appetite was underpinned by strong earnings reports from the US banking sector.
The Federal Reserve Beige Book stated that confidence in the outlook was stronger due to increased vaccination rates. There were reports of labour shortages in key areas and districts expected price hikes in the short future. Some districts also reported that price increases were extremely robust. Some districts expected that supply constraints and supply-chain issues would ease later in the year. Despite the inflation comments, bond yields were little changed later in the New York session which curbed a dollar recovery attempt and the US currency settled just below the 109.00 level.
There were underlying reservations surrounding Chinese headlines with further speculation that state-owned bad debt company Huarong could default on bond payments. Geopolitical tensions were also significant with Taiwan stating that the Chinese military threatens regional peace and stability.
US futures edged higher, but the yen resisted any significant selling pressure with the dollar held below the 109.00 level.
Sterling was able to stabilise during Wednesday with underlying support from the vaccine programme and economic re-opening efforts. The UK will still have greater scope for economic recovery in the short term, although there were expectations of stronger EU vaccine rates which sapped potential Pound support.
Overall confidence in the global recovery was generally stronger with the UK currency boosted by gains across oil and commodities.
The UK currency nudged above the 1.3800 level against the dollar while the Euro tested the 0.8700 level before a retreat to near 0.8680. There was a lull in domestic data releases which curbed volatility to some extent. There were some reservations over global credit trends and the possibility of a sharp risk setback.
Sterling was unable to gain support on Thursday and settled around 1.3775 against the dollar in early Europe with the Euro just below 0.8700.
The franc weakened significantly in European trading on Wednesday. The Euro gained support from an increased element of optimism over the EU vaccine programme as major countries stepped up the pace of jabs, although infection rates remain elevated.
Firm commodity prices also curbed potential demand for the Swiss franc. The Euro posted net gains to around 1.1050 while the dollar found support below 0.9200 and recovered to around 0.9225. The franc drifted lower on Thursday with the Euro just above 1.1050 and the dollar close to 0.9230.