EUR / USD
The single currency held a firm tone ahead of Thursday’s New York open, but was unable to make a challenge on the 1.2000 level against the dollar.
The Italian government announced a stimulus package worth EUR40bn which helped underpin Euro sentiment, but with strong resistance close to 1.2000.
US retail sales surged 9.8% for March following a revised 2.7% decline the previous month and well above consensus forecasts of a 6.3% gain. Underlying sales increased 8.4% on the month after a 2.5% previously and also well above market expectations while the control group posted a 6.9% gain.
Spending was boosted by the receipt of personal payment cheques and favourable weather as February’s weather-related slump in Texas was reversed.
Initial jobless claims declined to a 12-month low of 576,000 in the latest from a revised 769,000 previously and well below consensus forecasts of 700,000. There was also a decline in continuing claims and pandemic claims also declined by over 1.0 million for the latest week.
The Philadelphia Fed manufacturing index strengthened to 50.2 for April from a downwardly-revised 44.5 for March and close to record highs. There was further strong growth in new orders and output for the month with employment also increasing strongly. Upward pressure on input prices eased only slightly while prices received increased at a faster pace. The New York Empire manufacturing index also strengthened to 26.9 for April from 9.1 previously with a surge in new orders and stronger inflation pressures. Manufacturers in New York and Philadelphia both remained very confident over the outlook.
Despite the notably strong data, US yields declined after the data which limited potential dollar support and the US currency posted only a slight net advance amid expectations that the Federal Reserve would maintain very low interest rates. The dollar secured a marginal advance on Friday with the Euro around 1.1965.
US yields retreated earlier in the week after stronger than expected inflation data and there was an even stronger reaction after the retail sales releases with Treasuries gaining sharply. The 10-year yield dipped to near 1.56% with the 5-year rate below 0.85%.
The industrial production data was less impressive with the March rebound held to 1.4% after a revised 2.6% decline the previous month while the NAHB housing index edged higher to 83 from 82.
Cleveland Fed President Mester stated that the economy is still far from the employment goal and that she is not concerned over inflation moving too high. The overall Fed rhetoric remained dovish. Lower yields had an important impact in undermining dollar support with the US currency weakening to near 108.60. The yen was also broadly resilient despite fresh gains in Wall Street indices to record highs.
Chinese GDP increased 18.3% in the first quarter of 2021 and the retail sales data was stronger than expected with a 34.2% annual increase. The industrial data failed to meet expectations, however, with annual growth of 14.1%. Reaction was muted with the dollar trading around 108.85 against the yen as bond yields edged higher.
There were no significant UK data releases on Thursday with markets waiting for evidence of the recovery potential following the partial re-opening of the economy..
Sterling gained an element of support from strong gains in equity markets and firm overall risk conditions during the day as the FTSE 100 index posted 13-month highs on the day. There were still reservations over trade friction with the EU and uncertainty over the Northern Ireland protocol. There were also expectations that the UK’s early-vaccine advantage would fade, especially if the EU can strengthen its performance.
Sterling hit selling interest above 1.3800 against the dollar and settled just below this level while the Euro consolidated below 0.8700. The underlying performance was unimpressive given the favourable global backdrop with Sterling around 1.3765 against the dollar on Friday while the Euro held just below the 0.8700 level.
The franc resisted further selling pressure on Thursday despite further gains in global equity markets. The Swiss currency gained net support from the fresh decline in US yields during the day. Gains in precious metals also underpinned demand for the franc as gold posted solid gains on the day.
The Euro overall retreated to near 1.1035 while the dollar edged lower to 0.9215. The franc secured a slight gain on Friday as bond yields remained at lower levels with the dollar around 0.9220. Long-term reservations over higher global inflation were also an important element in underpinning the Swiss franc.