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EUR / USD

 

Sharp moves on the yen crosses had a significant impact in Europe on Monday with a yen slide against the Euro triggering a wider Euro advance to a peak just below the 1.1000 level against the dollar, but momentum faded quickly and there was significant Euro selling on rallies.

There were further concerns over the Euro-zone outlook and tensions surrounding Ukraine remained high with the US stating that Russian President Putin is not ready to make compromises to end the Ukraine war. There were also reports that the G7 had rejected paying for gas supplies in roubles, increasing the risk of disruption.

There was, however, a sharp decline in oil prices which provided an element of relief for the Euro-zone outlook and Euro yields moved higher.

The Dallas Fed manufacturing index retreated to 8.7 for March from 14.0 previously while inflation pressures remained very strong and there were stronger upward pressure on wages, maintaining underlying concerns over the inflation outlook.

The US goods trade deficit narrowed to $106.6bn for February from $107.6bn the previous month with exports increasing at a slightly faster rate on the month.

The Euro was resilient after the New York with some evidence of short covering on the major crosses and it consolidated around 1.0980. The Euro was again relatively resilient on Tuesday and traded just below the 1.1000 level with no progress in Ukraine peace talks limiting support and wariness over month-end position adjustment.

 

JPY

 

After coming under sustained pressure in Asian trading on Monday, the yen slumped after the European open with very heavy selling. The Bank of Japan announced that it would continue unlimited bond-buying operations for a further three days which helped trigger further yen selling. The dollar jumped to fresh 6-year highs just above the 125.0 level before a sharp correction as the yen was heavily oversold after the run of sharp losses.

Former Japanese Finance Ministry official Sakakibara stated that there was no need for the Bank of Japan to intervene at current prices, but should take action if the yen weakens beyond 130.0 against the dollar. There was nervousness over selling the yen given the risk of verbal intervention and US bond yields also moved lower.

After the Wall Street open, there was a further sharp decline in US bond yields which sapped the potential for dollar buying and it retreated to 123.50 against the yen.

In comments on Tuesday, Japanese Finance Minister Suzuki stated that the market will be watched closely to avoid negative yen weakness.

There were on-going reservations over lockdowns in China, although the authorities announced economic support packages in Shanghai.

There was further very choppy trading in the yen, especially with strong flows associated with the fiscal year-end. The yen dipped sharply in Asia as the Bank of Japan continued to cap yields, but there was strong buying on dips and the dollar dipped sharply from highs around 124.30 to trade around 123.50 in early Europe on Tuesday.

 

GBP

 

In comments on Monday, Bank of England Governor Bailey stated that the UK was facing a very large shock to income and spending while the shock from energy prices this year is likely to be larger than any single year in the 1970s. He added that the bank is beginning to see evidence of a slowdown in the economy while there is a very large trade-off between inflation and output. According to Bailey, there are risks in both directions to the outlook and trade-off situations are very difficult to deal with. Bailey also stated that the bank had been very cautious over forward guidance given the very high degree of uncertainty and in reference to the May rate decision is concerned, he noted that the situation is very volatile. He did add that it is appropriate to tighten policy, but the overall rhetoric continued to cast doubt whether the bank would pursue an aggressive run of interest rate hikes which undermined potential Sterling support in global currency markets.

Overall Sterling confidence remained weak with a retreat to 1.3075 against the dollar while the Euro strengthened to 0.8380. Sterling edged back towards 1.3100 against the dollar on Tuesday, although overall UK sentiment remained fragile with the Euro around 0.8395.

 

CHF

 

The Swiss franc dipped sharply in early Europe on Monday as the yen was subjected to heavy selling. The Euro strengthened to a peak of 1.0300 with dollar gains to 0.9380. There was a partial reversal of losses as the yen also corrected in choppy trading.

Total Swiss sight deposits increased to CHF731.5bn in the latest week from CHF728.9bn the previous week which suggested that the central bank had been intervening to restrain the Swiss currency. The franc was resilient later in the session with the Euro around 1.0260 on Tuesday and the dollar around 0.9335.

 

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