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EUR / USD

 

In comments on Friday, ECB council member Visco stated that a June rate hike was out of the question, but July was perhaps the time to start. Fellow member Villeroy stated that the inflation fight means normalising interest rates. He added that the central bank’s priority is fighting and mastering inflation.

Bundesbank head Nagel stated that negative interest rates are a thing of the past and added that more rate hikes could come in quick succession.

There are strong expectations that the ECB will raise rates at the July meeting with yield expectations underpinning the Euro. There were, however, also growth concerns with Visco also stating that the Euro-zone faces a moderate recession which could get worse depending on circumstances.

There was choppy Euro trading during the day with trends in risk appetite tending to dominate. The dollar gained and the Euro lost ground when equities declined while the reverse was true when equity markets moved higher. The Euro dipped to lows near 1.0530 before a rally to 1.0560 as US equities recovered ground.

The latest Euro-zone business confidence data due for release on Tuesday will be important for Euro confidence.  The dollar lost ground on Monday with net gains for commodity currencies helping to curb US support and the Euro advanced to briefly trade above the 1.0600 level as stronger equities limited dollar support.

 

JPY

 

After little change into Friday’s New York open, Treasuries posted net gains after the US open and held net gains even when Wall Street indices rallied. Lower longer-term yields sapped dollar support as it traded around 127.85 against the yen at the New York close.

There were no further comments on monetary policy and interest rates from Fed speakers during Friday with strong expectations of a further 50 basis-point hike in June.

CFTC data recorded a small decline in short yen positions to just above 102,000 from over 110,000 the previous week. There will be scope for further short covering if there is a further decline in US yields which would tend to give the yen further momentum..

The latest developments in China caused fresh reservations with Beijing reporting a record number of cases which reinforced lockdown fears. Overall risk appetite held firm , however, with gains for US future helping to underpin sentiment, especially with speculation that the Chinese central bank would provide further policy support over the next few months. With a weaker dollar tone, the US currency retreated to around 127.40 before a rebound to 127.85 with the Euro trading advancing to near 135.50.

 

GBP

 

Sterling gained an element of support from the stronger than expected retail sales report, especially as it generated speculation that the Bank of England would have more scope to raise interest rates. In comments on Friday, Bank of England chief economist Pill reiterated that the central bank faced its most difficult challenge for 25 years. He warned that inflation was liable to increase to above 10% and also commented that the tightening of monetary policy had some way to go. This suggests that there is scope for several further rate increases over the next few months which triggered some reassessment of the UK outlook.

Sterling also gained an element of support from a firmer tone surrounding risk appetite, although there was still an important element of caution surrounding the economic outlook and choppy trading during the day. The UK currency dipped to lows below 1.2450 against the dollar before a recovery to 1.2485 as equites recovered ground. This was the strongest weekly advance since December 2020 as short covering had an important impact while the Euro retreated to near 0.8450.

CFTC data recorded a marginal decline in short Sterling contracts, but the figure was still above 79,000 and close to the highest level since 2019, maintaining the potential for short covering if there is a shift in UK sentiment. Fiscal policy will also be watched closely over the next few weeks. There was a further element of short covering on Monday with a move to just above 1.2550 against the dollar as the US currency lost ground while the Euro retreated to 0.8440.

Comments from Bank of England Governor Bailey will be watched closely later on Monday for any further hints on the bank’s potential policy stance.

 

CHF

 

The Swiss franc was resilient during Friday with further speculation that the National Bank would tolerate medium-term franc appreciation. The Euro found support above 1.0250 and settled just below 1.0300 while the dollar settled close to 0.9750 after a dip to just below 0.9700.

Data on sight deposits will be monitored closely on Monday for further evidence on the extent of National Bank intervention to curb potential Swiss currency gains. The Swiss currency held firm on Monday with the Euro held close to the 1.0300 level while the dollar retreated to 0.9720.

 

Technical Levels 

Contents

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