EUR / USD
The Euro-zone PMI manufacturing index retreated to a 15-month low of 55.3 from 56.5 in March, but also slightly above forecasts. The services-sector index strengthened to an 8-month high of 57.7 from 55.6 and well above expectations. Inflation pressures remained intense with the second-highest rate of increase in costs and the index for selling prices increased to a record high. The data suggested some resilience in the Euro-zone economy.
Dollar strength dominated with the Euro dipping below 1.0800, although selling was curbed to some extent by a further slight increase in Euro money-market rates.
The US manufacturing PMI index strengthened to a 7-month high of 59.7 for April from 58.8 previously. There was, however, a notable retreat in the services-sector index to a 3-month low of 54.7 and well below expectations of 58.0. There was further strong upward pressure on costs with output charges increasing at the fastest rate on record. Overall business confidence dipped to a 3-month low amid concerns over inflation pressures.
The data provided an element of net support for the dollar and the Euro continued to lose ground with 23-month lows at 1.0770 before a slight recovery.
Exit polls for the French Presidential election run-off indicated a comfortable Macron victory by 58-42%. The Euro opened higher and, although it was unable to sustain the advance against the dollar, the currency demonstrated some resilience on the crosses. The dollar overall posted further net gains to a 25-month high on Monday with the Euro sliding to fresh 23-month lows below 1.0750 as risk appetite remained vulnerable. There will be no further Fed comments ahead of the May policy decision.
JPY
US shorter-term interest rates continued to increase on Friday amid expectations of aggressive Fed tightening and the 2-year yield increased to above 2.70% and the highest reading since November 2018. Markets also priced in a 10% chance that there would be a 0.75% rate hike at the May policy meeting. There was, however, a decline in longer-term yields as reservations over the economic outlook continued with the 10-year yield below 2.90%.
The dip in longer-term yields curbed potential support and there was also a further slide in equities which provided an element of yen support and the dollar traded around 128.25. Although US equites moved sharply lower, the dollar recovered to 128.50 at the New York close.
CFTC data recorded only a small decline in short yen positions to near 107,000 from 111,000 the previous week.
There were further concerns over Chinese coronavirus developments with cases spreading to Beijing which increased fears over the outlook and the yuan posted further losses to 12-month lows on Monday. Weaker equities provided an element of yen support with the dollar trading around 128.50 from highs above 128.80.
GBP
Sterling came under heavy pressure in early Europe on Friday following the latest UK data releases. The decline in retail sales increased fears over the outlook and a break below 1.30 against the dollar also triggered sharp selling and there was a rapid slide to below 1.2900. The Euro also posted a sharp advance to just above the 0.8400 level amid speculation that the Bank of England would decide against more than limited interest rate increases.
The UK PMI manufacturing index edged higher to 55.3 for April from 55.2 previously and above consensus forecasts of 54.0. The services-sector index, however, retreated to a three-month low of 58.3 from 62.6 and below expectations of 60.0. There was further upward pressure on costs with input prices strengthening sharply while factory-gate prices increased at the fastest pace on record. Business optimism dipped to the lowest level since October 2020. Sterling was unable to gain any respite, especially given the slide in risk conditions. Sterling slumped to lows around 1.2825 against the dollar while the Euro surged to highs around 0.8420.
CFTC data recorded a further net increase in short Sterling positions to near 59,000 and the largest short position since October 2019. Weak risk appetite was again an important element undermining Sterling support on Monday as it traded at a fresh 17-month below 1.2800 against the dollar with the Euro around 0.8420.
CHF
The Swiss franc was unable to gain significant support from weaker risk conditions during Friday and drifted lower under the weight of expectations surrounding more aggressive monetary tightening by other global central banks.
The Euro edged higher on the day while the dollar strengthened to a fresh 22-month high above 0.9570 while the Euro settled little changed around 1.0330. Relief surrounding Macron’s victory in France limited the degree of franc support from the slide in equities with the dollar at a fresh 22-month high just above 0.9580.
Technical Levels
