EUR / USD
Euro-zone industrial production increased 0.7% for February with a 2.0% annual gain compared with consensus forecasts of 0.8% and after a 1.5% decline previously.
ECB council member Kazaks stated that a rate hike was possible as soon as July as a gradual approach does not mean a slow response and that the central bank does not need to wait for stronger wages growth. Bundesbank head Nagel stated that he expects the first rate hike to come in the third quarter while also warning that getting inflation back to the 2% target is looking ever less likely. Overall rhetoric was slightly more hawkish.
The latest opinion poll for the second round of the French Presidential election recorded 55.5% for Macron, although markets were waiting for reaction to the TV debate.
Overall, there was tentative net Euro support from the ECB talk and energy prices retreated which helped underpin the currency. The dollar also corrected significantly in European trading as yields retreated with the Euro moving to highs above the 1.0850 level.
The Fed’s Beige Book stated that economic activity continued at a moderate pace. Most districts stated that inflationary pressures remained strong with further upward pressure on costs, although there was some evidence that strong wages growth had started to slow.
Snap polls suggested that Macron won the French TV presidential election debate, maintaining expectations that he would win Sunday’s run-off which provided an element of currency support. The Euro was unable to secure a further recovery and traded around 1.0850 in early Europe on Thursday.
JPY
US Treasures secured a significant correction on Wednesday with the 10-year yield retreating to around 2.86%. The decline in yields helped trigger a dollar retreat, especially with the yen seen as oversold. US existing home sales retreated to an annual rate of 5.77mn for March from 5.93mn previously and slightly below consensus forecasts which maintained scope for a limited correction in US yields.
Overall, the dollar dipped to lows just below 127.50 before stabilising with overall yield spreads still negative for the Japanese currency.
San Francisco Fed President Daly stated that it would be prudent to raise rates to 2.5% by year-end as moving purposely to a more neutral policy stance is a top priority.
She added that the Fed will need to assess financial conditions and inflation for subsequent actions. The dollar consolidated around 127.70 later in the US session.
The Bank of Japan continued to intervene to cap domestic bond yields. Bank of Japan Governor Kuroda stated that forex stability is desirable, but there was no significant warning over currency levels from the G20 meeting and overall yield spreads triggered renewed selling pressure on the yen with dollar highs above 128.50 before a limited correction to 128.20. Volatility is likely to remain higher in the short term with underlying selling offset by pressure for a correction.
GBP
Sterling was again confined to relatively narrow ranges during Wednesday with a lack of fresh incentives. Markets will be looking for high-frequency data to assess whether there has been a slowdown in consumer spending and markets also will be anxious for any guidance from bank of England officials.
Sterling did gain an element of support from solid risk conditions as European equities made headway.
The ability to hold 1.3000 against the dollar also triggered an element of Sterling buying and a covering of short positions. As the dollar edged lower, there were gains to above 1.3050 while the Euro secured a net advance to near 0.8300. There was no significant impact from UK political developments with a House of Commons debate on Prime Minster Johnson due on Thursday and the government aiming to delay any move to refer Johnson to the privileges committee.
Any direct comments on monetary policy from Bank of England Governor Bailey on Thursday will be much more important for markets with MPC member Mann also due to make comments. Sterling was able to hold around 1.3050 in early Europe on Thursday as global moves tended to dominate.
CHF
The Swiss franc was more resilient on Wednesday with investors continuing to assess global yield trends. The sharp increase in domestic yields on Tuesday also had a delayed impact in limiting selling. The Euro was unable to break above 1.0300 and drifted to 1.0280 while the dollar retreated to 0.9470.
A Macron victory in the French Presidential election would curb potential franc support, but there will still be potential defensive support from the Ukraine war.
The franc edged lower on Thursday as low-yield currencies tended to remain under pressure with the dollar fractionally above the 0.9500 level.
Technical Levels
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