EUR / USD
Following the latest round of Russian/Ukraine peace talks, there were some hints that progress was being made with Ukraine commenting that Russia had adjusted its stance and the talks will resume on Tuesday. There were some successes in allowing civilians to leave besieged cities.
The Euro posted net gains ahead of the European open, but was unable to make a significant challenge on the 1.1000 level against the US dollar.
Overall yield spreads moved against the Euro which sapped potential support with another attempt at 1.1000 failing after the European close.
Late in Europe there were also reports from US officials that China was aiming to help Russia which sapped potential Euro support.
Commodity currencies moved lower as oil prices dipped sharply and US yields moved higher which was a significant factor in supporting the US dollar. The Euro consolidated around 1.0970 at the European close before drifting lower late in the day amid expectations of Federal Reserve tightening.
The Euro gained fresh support on Tuesday as an exodus from commodity currencies triggered another round of short covering against the single currency on the major crosses. A slide in oil prices also provided some relief for the economic outlook and the Euro traded around 1.0975 against the US currency.
The dollar maintained a firm tone ahead of Monday’s New York open with a challenge on levels above 118.00 against the Japanese currency.
The latest New York Fed survey recorded an increase in one-year inflation expectations to a 4-month high of 6.0% from 5.8% previously with food prices expected to increase 9.2% over the year from 5.9%. The three-year expectations index also increased to 3.8% from 3.5% with the increase in expectations likely to be of concern for the Federal Reserve. There are strong expectations that the Fed will push ahead with a 0.25% rate increase at the Wednesday policy meeting and there were also expectations of hawkish forward guidance given increase concerns over inflation developments.
US bond yields continued to move higher after the US open with the 10-year yield increasing to 2.12% and the highest level since July 2019.
Although equities moved lower, the increase in yields was the dominant factor with the dollar holding close to 118.00.
The latest Chinese industrial production data was much stronger than expected with 7.5% growth in the first two months of 2022 from 4.3% previously and compared with expectations of 4.0%. The statistics bureau still warned over the outlook and there were fresh concerns over the sharp increase in coronavirus cases.
The Bank of Japan stated that it remain committed to a very supportive monetary policy which sapped yen support. US bond yields continued to move higher in Asia and the dollar posted a further advance to fresh 5-year highs around 118.35 before a retreat to below 118.00 as yields dipped again with the Euro stalling near 130.0.
Sterling found support above 1.3000 against the dollar in early Europe on Monday and secured a limited recovery with highs near 1.3080 as the US currency lost ground, although it was still difficult to gain any significant overall traction. There were fresh concerns over the UK outlook even with a decline in energy prices and there were also doubts whether the Bank of England would meet market expectations surrounding interest rate increases this year.
Sterling drifted to near 1.3030 at the European close as commodities retreated and equity markets moved lower. The Euro also secured a significant net advance to 0.8420 as UK currency lost wider support. Risk appetite held firm on Tuesday with the slide in energy prices helping to curb inflation fears. Sterling advanced to 1.3040 against the dollar with the Euro holding around 0.8420. The headline UK unemployment rate declined to 3.9% in the three months to January from 4.1% and there was a further increase in payrolls for February. Earnings data was slightly stronger than expected, but Sterling was held around 1.3025 against the dollar.
Total Swiss sight deposits increased to CHF728.0bn in the latest week from CHF725.7bn the previous week with the stronger rate of increasing suggesting that the National Bank had been intervening more aggressively during the week as the Euro dipped to party against the Swiss currency.
The Euro posted a fresh advance to 1.0280 against the franc on Monday with higher global yields undermining potential support for the Swiss currency. The dollar was able to avoid selling and settled little changed around 0.9260 at the European close.
The franc lost further ground on Tuesday with the Euro strengthening to 1.0320 while the dollar also secured a net advance to 11-month highs near 0.9400.