EUR / USD
The Euro was unable to sustain a limited corrective rebound on Thursday as underlying sentiment remained notably cautious. There were further concerns surrounding Ukraine developments, especially with on-going aggressive rhetoric from Russian officials while US President Biden asked Congress for another huge support package.
German consumer prices increased 0.8% for April with the year-on-year increases at 7.4% from 7.3% the previous month which was above consensus forecasts of 7.2% and the highest rate since March 1974 which will maintain Bundesbank demands for a tighter monetary policy.
US GDP data was notably weaker than expected with an annualised first-quarter contraction of 1.4% for the first quarter of 2022 after 6.9% growth previously and below consensus forecasts of 1.1%. Consumer spending increased at a slightly faster rate for the quarter, but there was weakness in investment and government spending while there was a net contraction from trade and inventories also declined on the quarter. The prices index increased 8.0% for the quarter from 7.1% previously.
Energy polices remained a key element with report that the EU was close to announcing a ban on Russian oil with the move phased in to lessen economic damage.
The dollar dipped lower after the US GDP data, but the Euro was unable to gain sustained support and dipped to a fresh 5-year low near 1.0470 before settling close to 1.0500. The dollar index also touched a 20-year high before correcting slightly. The dollar corrected further on Friday with underlying pressure for a correction a key element, although markets were wary over the potential for further buying related to month-end position adjustment during the day.
The yen remained under heavy selling pressure after Thursday’s European open with further fall-out from the Bank of Japan policy decision. The commitment to a very expansionary monetary policy and continuing yield cap of 0.25% for the 10-year yield maintained heavy selling pressure on the Japanese currency.
Initial jobless claims edged lower to 180,000 in the latest week from 185,000 the previous week and in line with consensus forecasts while continuing clams were unchanged at 1.41mn and marginally above expectations. The dollar briefly spiked lower following the US GDP data, but Treasuries were unable to gain significant support and higher US yields lessened the potential for more than fleeting yen buying as the Bank of Japan policy maintained a very loose monetary policy.
US equity futures held a firm tone and the dollar strengthened to 20-year highs just above the 131.0 level against the Japanese currency.
Overall, the dollar consolidated just below 131.0 against the yen at the New York close as ranges narrowed.
Japanese markets were closed on Friday ahead of the Golden Week holidays which dampened volatility. China reiterated its determination to stick to the zero-covid policy which maintained unease over the outlook and the yen retreated to just below 130.50 amid a wider dollar correction with the Euro around 137.35.
Underlying Sterling sentiment remained weak during Thursday with further concerns over the UK outlook. The UK currency did attempt to rally after the European open, but struggled to make any headway even with gains in equity markets and a more stable risk tone.
There were no data releases during the day and there was a significant element of caution ahead of next week’s Bank of England policy meeting. There were strong expectations that the bank would downgrade its growth forecasts and raise inflation forecasts. Even if the bank avoids a more dovish statement, there were still expectations that other central banks would be more likely to adopt a hawkish tone which limited potential Sterling support.
Sterling dipped below the important 1.2500 level which triggered another round of selling and a fresh 21-month low near 1.2410 while the Euro posted a net advance to around 0.8440. Sterling gained some relief later in the day, especially with strong gains in Wall Street equities. The latest Lloyds business confidence data also provided an element of relief and Sterling traded just above 1.2500 against the dollar on Friday with the Euro around 0.8415.
The Swiss franc was resilient on Thursday despite net gains in equity markets. Persistent concerns surrounding the Ukraine situation provided a significant element of support for the domestic currency during the day, especially with reservations over the risk of escalation in the conflict. The Euro edged lower to test support below the 1.0200 level while the dollar posted a fresh 22-month high above 0.9750 before a correction to 0.9725.
The franc overall was little changed on Friday with the dollar holding just above the 0.9700 level with choppy trading likely later on Friday.