EUR / USD
The Euro held a firm tone ahead of Tuesday’s New York open, but gains were very limited and there was no challenge on the 1.1900 level against the US dollar.
Risk appetite started to deteriorate just after the US open with equities losing ground and this helped trigger renewed defensive dollar demand, especially with losses in commodity currencies. In this environment, the Euro drifted lower, although tight ranges still prevailed.
The focus will start to move towards the employment situation on Wednesday with the ADP data at the New York open ahead of jobless claims figures on Thursday and the monthly employment report on Friday. Friday’s jobs report will have an important impact on Federal Reserve expectations and global currency markets.
St Louis Fed President Bullard reiterated that he wants the ending crisis-era policies to begin soon in order that the central bank can move in small steps rather than having the risk of a scramble if high inflation persists. He continued to back an early tapering of bond purchases.
San Francisco head Daly stated that there was no reason to expect factors crimping labour supply will be permanent.
Comments from Federal Reserve officials will continue to be watched closely with vice-president Clarida due to issue remarks on Wednesday.
The dollar gained some traction after the Wall Street open, but the Euro found support just above 1.1850 and the US currency was unable to hold intra-day highs and drifted weaker later in the session with the Euro consolidating around 1.1865.
Tight ranges prevailed on Wednesday with the Euro around 1.1870 while commodity currencies secured slight gains and defensive dollar demand declined slightly.
The dollar held steady ahead of the US open on Tuesday, but unable to make any headway as equity futures stalled. There was a significant dip in risk appetite as Wall Street opened with weaker equities and a dip in crude oil futures which sapped confidence.
In this environment, there was renewed defensive demand for the Japanese currency as markets favoured safe-haven currencies. The dollar dipped below the 109.00 level while the Euro also retreated sharply to near 129.20 as risk conditions remained a key element.
Wall Street equities recovered ground strongly later in the day and the dollar nudged back above the 109.00 level, although the Japanese currency was still broadly resilient given global coronavirus developments and further uncertainty over global supply-side issues.
There were reports that Japan is considering a nationwide state of emergency which maintained concerns over coronavirus developments. Asian equities secured net gains on Wednesday with the dollar trading just above the 109.00 level while the Euro was close to the 129.50 level.
Sterling posted limited net gains in early Europe on Tuesday with the UK currency posting net gains against the US dollar while the Euro edged lower.
There was relative optimism over the UK coronavirus outlook with hopes that the UK could approach herd immunity over the next few weeks which would help underpin the UK recovery and give the Pound a relative advantage in global markets.
There were no significant data releases on Tuesday and an element of caution ahead of Thursday’s Bank of England policy meeting.
Risk appetite, however, deteriorated significantly after the New York open which had a significant impact in curbing Sterling support. There was a fresh retreat to below 1.3900 against the dollar while the Euro held just below the 0.8550 level.
The UK currency edged higher later in the session amid recoveries in equity markets as global risk conditions continued to have an important impact. The UK currency traded around 1.3925 against the dollar on Wednesday with the Euro retreating to around 0.8525 as underlying tensions increased.
The Swiss franc resisted losses in early Europe on Tuesday as underlying selling remained limited. The currency drew further support from weaker risk conditions in New York as equity markets moved lower. In this environment, the Euro retreated to test the 1.0730 area against the franc while the dollar dipped to 6-week lows near 0.9020. The franc stabilised later in the day, but remained resilient with low yields elsewhere continuing to limit potential selling pressure. The Swiss currency was little changed on Tuesday with the dollar around 0.9035 as markets monitored National Bank actions closely.