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EUR / USD

 

The Euro was unable to make any headway ahead of Friday’s New York open with no positive developments surrounding the Ukraine conflict.

Fed Governor Waller stated that the US economic data screams for a 50 basis-point rate increase, although geo-political concerns demand caution. He added that any policy norm would dictate that rates should be higher than we are today and added that data suggests the central bank will be moving towards a 0.50% rate hike at one or more of the upcoming meetings. The comments from Waller triggered renewed expectations of a more aggressive policy stance from the central bank which provided significant dollar support and the Euro retreated to test support around the 1.1000 where there significant buying interest.

Minneapolis Fed President Kashkari stated that he sees rates at 1.75-2.00% at year end. Richmond head Barkin stated that he was very open to a 50 basis-point hike in rates if inflation does not begin to settle. Markets indicated that the chances of a 50 basis-point hike in May were close to 50%.

There was a rebound to around 1.1050 at the New York close as the dollar failed to hold its best levels in global markets.

CFTC data recorded a sharp decline in long, speculative Euro contracts to fewer than 19,000 contracts from near 59,000 the previous week.

ECB council member Holzmann again backed his call for a potential interest rate hike before ending bond purchases while fellow council member Knot stated that a rate hike was realistic this year. The Euro was unable to make headway on Monday amid unease over the Euro-zone growth outlook. There was no progress in Russia/Ukraine peace talks which dampened potential Euro support and the currency traded around 1.1040 amid reservations over the Euro-zone outlook.

 

JPY

 

US existing home sales declined to an annual rate of 6.02mn for February from a revised 6.49mn the previous month and slightly below consensus forecasts.

US Treasuries edged lower in early US trading, although the 10-year yield was held around 2.15% while equities edged higher. Overall yen sentiment remained weak following the Bank of Japan policy meeting with expectations that the central bank would maintain a very loose monetary policy over the next few months. In this context, there were expectations that the yen would continue to be used as a global funding currency which would also tend to undermine the currency.

The dollar advanced to fresh 6-year highs around 119.40 before a retreat to 119.15 with no major developments surrounding the Biden/Xi meeting.

There was some relief that production operations had resumed in the Chinese city of Shenzhen as the authorities adapted their coronavirus strategy, but regional equity markets were slightly lower and Tokyo markets were closed for a holiday. The yen overall remained on the defensive amid expectations of a sustained increase in US interest rates with the dollar trading around 119.25 and the Euro around 131.70 as markets also monitored global risk conditions.

 

GBP

 

Sterling was able to secure a tentative recovery on Friday with some reassessment of the Bank of England policy decision. Although the statement was less hawkish than expected, there were still expectations that there would be further rate hikes which would underpin short-term yield spreads, especially against the yen low-yielding currencies. Sterling found support above 1.3100 and rallied to 1.3175 at the European close while the Euro retreated back below 0.8400.

CFTC data recorded an increase in short, non-commercial Sterling positions to over 29,000 contracts in the latest week from 12,500 the previous week and the largest short position for over two months. The positioning will give scope for short covering if there is a net boost to Sterling sentiment.

There will be some caution ahead of Wednesday’s Spring budget statement from Chancellor Sunak with expectations that fuel duty will be cut to ease immediate upward pressure on prices. Rightmove data on house prices remained strong with a further 1.7% increase for February with the housing sector still strong. Risk conditions were, however, more cautious on Monday and Sterling edged lower to trade just above 1.3150 against the dollar with the Euro around 0.8395.

 

CHF

 

The Swiss franc posted strong gains on Friday with the Euro sliding to below the 1.0300 level while the dollar also posted a sharp decline to below 0.9320.

The franc was resilient despite gains in global equity markets and relatively solid risk appetite. The currency was also able to resist losses despite expectations that the National Bank will remain a very loose policy stance. There will be some caution ahead of Thursday’s central bank policy decision with forward guidance watched closely. The franc edged lower on Monday as low-yield currencies tended to lose support, but the dollar was held around 0.9335.

Technical Levels

Contents

Disclaimer

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