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German factory orders declined 2.2% for February after a revised 2.3% increase the previous month and weaker than consensus forecasts. The Euro was able to resist further selling pressure in early Europe on Wednesday and secured a tentative rebound with an element of short covering and a wider dollar correction. The Euro peaked close to 1.0940 before drifting lower again amid underlying concerns over the Euro-zone outlook.

ECB chief economist Lane stated that it was important not to over-react to the inflation surge. He added that the bank can’t respond to current high inflation and the bank’s orientation is towards the medium term. Lane has maintained a consistently dovish stance and these comments suggested that the economics department will not be backing a tighter policy. The Euro drifted towards 1.0900 ahead of the Federal Reserve minutes.

Minutes from March’s policy meeting recorded that all participants emphasised the importance of remaining vigilant to the danger of more upward pressure on prices and that it would be appropriate to quickly shift the stance of monetary policy towards neutrality. Many participants stated that they would have liked a 50 basis-point increase at the meeting and also remarked that one or more 50 basis-point increases may be appropriate at future meetings, especially if inflation pressure stay elevated or intensify. There was also agreement that it would be appropriate to start balance-sheet reduction soon, potentially as early as immediately after the May meeting.

The overall tone was hawkish, but market expectations have already shifted sharply, especially after Brainard’s comments on Tuesday and there was choppy trading following the release. The dollar was unable to extend gains with a substantial Fed tightening priced in and the Euro traded just above the 1.0900 level on Thursday.

Ukraine developments will continue to be monitored closely in the short term and there will be an element of caution ahead of next week’s ECB policy meeting.




After sharp losses the previous day, Treasuries attempted to stabilise in early New York on Wednesday with a more stable tone in yields curbing the potential for further dollar buying even tough US sentiment remained firm. Richmond Fed President Barkin stated that the Fed has some time to get to a neutral position.

The yen gained an element of support from renewed losses on Wall Street and there was also speculation that Japanese officials would warn over the need for currency losses to be contained given the political need to avoid a further surge in import prices.

Treasuries edged higher after the Fed minutes while there was very choppy trading in equities with markets still expecting aggressive Fed tightening.

Bank of Japan member Uchida stated that the loose monetary policy created jobs and supported economic activity. Asian equity markets were on the defensive on Thursday and there were further reservations over Chinese coronavirus developments given the domestic and global impact of lockdowns. US yields also edged lower with the dollar unable to make further headway and settling around 123.65 with the Euro just below 125.0.




The UK PMI construction index was unchanged at a 9-month high of 59.1 for March and above consensus forecasts of 57.8. Cost pressures remained intense with input price costs increasing at the fastest rate for six months. Overall business optimism dipped to a 17-month low, matching the decline seen in both the manufacturing and services sectors. As well as unease over the Ukraine situation, there were important reservations over the impact of higher inflation with UK confidence fragile.

Sterling moves overall were still dominated by global developments with markets waiting for any fresh guidance from the Bank of England.

Risk conditions remained more fragile which tended to sap potential currency support and Sterling was unable to hold above 1.3100 against the dollar.

Sterling did find support near 1.3050 and recovered slightly on Thursday, but domestic and international reservations continued to sap underlying support, especially given reservations over UK domestic demand. Sterling traded below 1.3100 against the dollar with the Euro around 0.8345.




In comments on Wednesday, the IMF stated that the time may be approaching for the National Bank to tighten policy. The IMF cited concerns over higher inflation and the risks that would become persistent.

The franc, however, edged lower on the day as the immediate move to higher yields in other currencies undermined the currency. The Euro settled around 1.0170 while the dollar secured a net advance. The franc was little changed on Thursday with no additional defensive demand for the franc and the dollar around 0.9325.


Technical Levels



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