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EUR / USD

 

The Euro-zone PMI services index for March was revised up to a 4-month high of 55.6 for March from the flash reading of 54.8. The Spanish PMI index weaker than expected, but the Italian figure beat expectations with both in expansion territory. There was, however, a dip in business optimism to a 17-month low while strong upward pressure on costs continued with input costs and output charges both increasing at record-high rates for the month.

The Euro was unable to gain any support from the data, but was held in tight ranges ahead of the New York open with Ukraine fears sapping underlying support.

The EU Commission announced fresh sanctions on Russia including an import ban on coal and a ban on Russian ships docking in the EU.

In comments on Tuesday, Federal Reserve Governor Brainard stated that inflation is much too high and subject to upside risks. She added that the Fed is prepared to take stronger action if inflation and inflation expectations suggest the need to do so which was an important hawkish shift.

She also added that the central bank would tighten methodically through a series of rate hikes which suggested a preference for gradual moves.

Markets, however, tended to focus on the hawkish rhetoric and the dollar posted strong gains. Overall Euro sentiment remained weak and it dipped to lows near 1.0900 after breaking through support in the 1.0960 area. Higher yields continued to support the dollar on Wednesday and the Euro dipped to 4-week lows around 1.0875 as further unease surrounding the Ukraine outlook sapped single-currency support, especially with concerns over the threat of economic retaliation from Russia.

 

JPY

 

The ISM non-manufacturing index strengthened to 58.3 for March from 56.5 the previous month, although slightly below consensus forecasts. Production growth was little changed while new orders increased at a faster rate. Employment moved back into expansion for the month while supply-side difficulties persisted and there was a renewed decline in inventories. Cost pressures remained strong and the prices increased edged higher on the month with a reading only marginally below record highs.

Following the US ISM data and hawkish rhetoric from Fed Governor Brainard, there was a renewed slide in Treasuries. The 2-year yield increased strongly to above 2.50% with the 10-year yield around 2.55%. Wall Street equities lost ground, but the yen was hurt by higher US yields, especially with a dovish Bank of Japan stance. In this environment, the dollar posted strong gains to highs near 123.70 against the yen at the European close.

China’s Caixin PMI services index dipped sharply to a 2-year low of 42.0 for March from 50.2 previously as covid-related lockdowns had an important impact in undermining confidence. There were further concerns surrounding the situation in Shanghai and expectations of further supply disruptions, although Chinese equities were resilient. US yield continued to move higher in Asia with the 10-year yield at a 3-year high around 2.63%. Higher yields continued to support the dollar with a peak just above the 124.0 level before a marginal correction while the Euro tested the 135.0 area.

 

GBP

 

The UK PMI services-sector index was revised up significantly to a final reading of 62.6 from the flash reading of 60.9.  This was the strongest reading for 10 months as coronavirus restrictions were eased in the travel and leisure sectors, although business optimism dipped to a 17-month low. There was further strong upward pressure on costs with output charges increasing at the fastest pace on record. There was no significant change in the UK economic narrative with supply and demand fears.

The data did provide an element of Sterling support and the UK currency was able to make headway into the New York open with a peak just below 1.3170.

There was divergence in equity market trends as the FTSE 100 index posted net gains, but Wall Street indices lost ground on fears over higher interest rates.

Sterling was hampered by weaker risk conditions, although the strong dollar advance had a more substantial impact with Sterling sliding to below the 1.3100 level.

The Euro lost further ground to the 0.8340 area. Dollar strength dominated on Wednesday with Sterling retreating to near 1.3050 against the US currency.

 

CHF

 

The Swiss franc was hampered by a higher US bond yields during Tuesday, although the currency overall was resilient. The Euro edged lower to near 1.0110 before stabilising while the dollar posted a net advance to 0.9300 as US yields moved sharply higher.

The franc still gained an element of support from unease surrounding the Ukraine situation with concerns surrounding energy security and the Euro-zone outlook. The franc lost ground on Wednesday as higher bond yields dominated markets with the dollar strengthening to around 0.9325.

 

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