EUR / USD
The Euro was unable to make significant headway ahead of Tuesday’s New York open and gradually lost ground amid the combination of an underlying lack of confidence in the Euro-zone outlook and persistent dollar strength. There were further concerns surrounding the Ukraine situation with fears over a prolonged conflict as well as an escalation as Germany reversed policy and agreed to send heavy weapons to Ukraine. The tough rhetoric from Russia also increased concerns over potential disruption to Euro-zone energy imports as Russia announced that gas exports to Poland and Bulgaria would be stopped due a refusal to pay in roubles.
The US Case Shiller house-price index increased 2.4% for February with the year-on-year increase at 20.2% from 18.9% previously.
Consumer confidence edged lower to 107.3 from a revised 107.6 previously and slightly below market expectations with labour-market confidence slightly weaker.
The Richmond Fed manufacturing index edged higher to 14 for April from 13 the previous month and above consensus forecasts of 9, although there was a slowdown in the rate of growth in orders. There was a slight easing of skills shortages, although the labour market remained tight. There was very strong upward pressure on costs while the rate of increase in prices received eased slightly.
The dollar overall maintained a strong tone, especially with an element of defensive support given the sharp retreat in equity markets.
The Euro continued to lose ground and retreated to lows below 1.0650 ahead of the European close with markets then targeting the 2020 lows at 1.0635. A dip below this level would push the Euro to 5- year lows and the Euro recovered only marginally on Wednesday with the dollar index at fresh 25-month highs.
JPY
Risk appetite was unable to improve further ahead of Tuesday’s New York open and there was renewed selling pressure on equities after the New York open. Treasuries posted net gains as risk appetite deteriorated with the 10-year yield dipping below the 2.75% level.
March US durable goods orders increased 0.8% after a revised 1.7% increase the previous month and marginally below consensus forecasts. Underlying orders increased 1.1% after a revised 0.5% decline the previous month. New home sales declined to an annual rate of 763,000 for March from a revised 835,000 previously.
Lower longer-term yields sapped support for the dollar and the slide in equities also provided an element of Yen support. In this environment, the dollar dipped sharply to lows near 127.00 before a recovery to around 127.50 as volatility remained high.
US equities attempted to stabilise on Wednesday, but sentiment remained fragile and there were reports of splits within China’s Cabinet over how to support the property sector. The Bank of Japan is continuing to cap bond yields at this stage, but the policy decision will be monitored closely on Thursday for any policy shift with the potential for a yen surge if the bank lifts the cap on yields. Overall, the dollar settled around 127.80 in early Europe with high volatility set to continue.
GBP
According to provisional data, the UK government borrowing requirement amounted to £18.1bn for March from £26.9bn the previous year, but this was higher than expected and the second-highest March deficit on record. For fiscal 2021/22, the deficit declined to £151.8bn and 6.4% of GDP from £317.6bn the previous year. The data overall will maintain concerns over the UK fundamentals, especially as debt interest payments will continue to increase, limiting scope for government fiscal support measures. Sterling was unable to make significant headway in early Europe as underlying sentiment towards the UK economy continued to deteriorate.
As risk appetite deteriorated again, the UK currency was subjected to sustained selling after the New York open. The UK currency slumped to 21-month lows below 1.2600 against the dollar as equity markets moved sharply lower while the Euro strengthened to 0.8450 despite weakness elsewhere.
Sterling sentiment remained negative on Wednesday even though selling eased slightly as equities attempted to stabilise and it continued to trade below 1.2600.
CHF
The Swiss franc was resilient in early Europe on Tuesday and gradually gained fresh ground as risk appetite deteriorated again. The fresh slide in equity markets was important in providing further support for the Swiss currency. The Euro dipped to lows near 1.0210 before a limited recovery while the dollar secured a limited net advance to above the 0.9600 level. The franc failed to hold its best levels amid expectations of aggressive global interest rate hikes and possible inflation peak. The Euro traded around 1.0250 on Wednesday with the dollar at fresh 22-month highs around 0.9640.
Technical Levels
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