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EUR / USD

The dollar attempted a slight recovery in early Europe on Friday, but was unable to make significant gains and lost traction again ahead of the New York open amid slightly stronger Euro confidence as commodity currencies also reversed initial losses.

US housing starts increased to an annual rate of 1.74mn for March, close to the highest level for 15 years from a revised 1.46mn previously and above consensus forecasts of 1.61mn while building permits increased to 1.77mn from 1.72mn. The University of Michigan consumer confidence index strengthened to 86.5 for April from 84.9 previously, although markets had expected a larger increase. The expectations index was unchanged on the month which held back the overall index. 

The US currency was undermined by further expectations that the Federal Reserve would maintain interest rates at extremely low interest rates. If inflation moves higher, real interest rates are liable to move further into negative territory which would sap US currency support.

Relatively narrow ranges prevailed with the US currency unable to make headway despite a limited correction weaker for commodity currencies. Overall, the Euro settled around 1.1985. There was little change in speculative positioning for the week. The Euro retreated slightly to 1.1965 on Monday with the dollar just above 3-week lows.

JPY

US 10-year yields edged higher on Friday, although the dollar was unable to make significant headway and unable to regain the 109.00 level. The US currency traded around 108.80 as Wall Street equities posted limited net gains to fresh record highs.

Dallas Fed President Kaplan stated that unemployment was likely to retreat towards 4% by the end of the year and that policymakers should wean the economy off the super-easy monetary policy at the earliest opportunity. Fed Governor Waller stated that the US economy is ready to rip, but that higher inflation would be transitory.

There was no change in speculative yen positioning in the latest week with funds maintaining a substantial short position.

There were reports that President Biden would accept an increase in the corporate tax rate to 25% compared with the proposed 28%.

Japanese trade data reported that exports increased 16.1% in the year to March which provided some relief and there was some easing of pressure on chip supplies, but Osaka is set to request a state of emergency declaration due to increase coronavirus cases. The yen is on the US Treasury’s monitoring list for currency manipulation, which could deter yen selling to some extent. Reports indicated that Chinese investment company Huarong had met its bond payment which provided some relief. The dollar overall was unable to make headway and retreated to just below 108.50 at the European open.

GBP

The latest ONS data recorded a further decline in UK coronavirus infection rates with the estimate proportion of people infected in the latest week down to 1 in 500.

Germany also announced that the UK would no longer be considered a coronavirus risk zone from Sunday.

The UK currency gained an element of support from relative optimism over the UK outlook. Sterling managed to secure a break above 1.3800 against the dollar and traded around 1.3840 at the New York close while the Euro was undermined by the inability to hold above the 0.8700 level and retreated to around 0.8660.

CFTC data recorded an increase in long non-commercial Sterling positions to 26,000 in the latest week from 20,000 previously. The increase provides some evidence that the sharp Sterling dip after the Easter holidays was seen as a buying opportunity on value grounds.

Rightmove reported an increase in asking prices for houses of 2.1% for April to a record high with an annual increase of 5.1% from 2.7% previously. Risk appetite held broadly firm on Monday which helped underpin the UK currency as it edged to above 1.3850 against the dollar while the Euro retreated to 0.8635.

CHF

The franc resisted significant selling pressure on Friday with little traction in US yields curbing potential selling pressure while precious metals also held a firm tone. The Euro settled around 1.1030 with the dollar settling close to 0.9200 after finding some support below this level.

In its latest report, the US Treasury stopped labelling Switzerland as a current manipulator, although it remains on the watch list and there will be enhanced engagement. The National Bank stated that the franc remained highly valued and could continue to intervene as necessary. The decision overall will provide significant relief for the bank and lessen the risk of franc gains. The immediate reaction was limited with the Euro around 1.1010 and the dollar was held only just above 0.9200.

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