The dollar lost ground as yields declined with the US currency dipping to 2-week lows.

US Treasury yields declined significantly during the day which had an important impact on asset classes. Wall Street equities were unable to hold gains with marginal losses.

The dollar lost ground as yields declined with the US currency dipping to 2-week lows. Euro sentiment was underpinned by hopes for stronger vaccine headway. EUR/USD traded above 1.1850 as the currency held gains on the crosses. Sterling posted sharp losses as relative UK optimism faded with GBP/EUR at 2-week lows.

There was renewed support for the yen and Swiss franc as bond yields declined. Commodity currencies recovered from intra-day losses, but the performance was unconvincing.

The Euro-zone Sentix investor confidence index strengthened to 13.1 for April from 5.0 previously. The reading was above expectations of 7.5 and the strongest release since August 2018. The Euro-zone unemployment rate was reported at 8.3% for February, unchanged from an upwardly-revised February figure and above consensus forecasts of 8.1%. Euro-area unemployment remained significantly above the US rate, reinforcing expectations of near-term US out-performance.

The Euro was able to resist renewed selling pressure as the dollar was unable to secure fresh traction.

There were also reports from EU Commission internal documents that the EU was on track to vaccinate close to 60% of the total population by the end of June which would also imply that the EU is likely to exceed the target of 70% vaccination rates by the end of the Summer.

There will be scope for a significant boost to underlying Euro sentiment if actual vaccination figures suggest that the revised target is within reach. The single currency was resilient despite a further increase in French hospitalisation cases to over 30,000 as confidence in the outlook improved.

The JOLTS data recorded an increase in job openings to 7.37mn for February from 7.10mn the previous month and above consensus forecasts of 7.00mn. The IBD consumer confidence index strengthened to 56.4 from 55.4 previously.

The dollar overall was unable to gain fresh support with EUR/USD settling around 1.1850 at the European close. There was a further net advance to 1.1870 late in the New York session. The dollar was trapped close to 2-week lows on Wednesday with EUR/USD holding close to 1.1870.

US yields continued to move lower after Tuesday’s Wall Street open which had a significant impact in undermining dollar demand. In this environment, USD/JPY retreated again with a break below the 110.00 level triggering a round of stop-loss selling and lows just below 109.70. There were some reservations over an increase in US coronavirus cases, but the vaccine programme continued to make strong headway, reinforcing hopes that cases would not lead to serious illness.

The IMF also upgraded its global growth outlook which helped underpin risk conditions. Markets had already shifted their expectations sharply, limiting any impact and yields continued to edge lower. The five-year yield declined to 0.87% from a 14-month high of 0.99% on Monday which continued to sap dollar support.

Markets will continue to monitor Administration infrastructure plans with Biden due to speak later on Wednesday. The latest Federal Reserve minutes will also be watched closely. USD/JPY dipped to lows just below 109.60 in Asia on Wednesday and a tentative recovery was held near 109.80.

Sterling was unable to break resistance against the Euro in early Europe on Tuesday which limited the scope for further buying and selling increased after GBP/EUR moved below the 1.1650 level. GBP/USD was also unable to hold above 1.3900 which helped trigger renewed selling. GBP/USD dipped to lows just below 1.3820 while GBP/EUR weakened below 1.1650 as selling pressure increased.

Although confidence in the UK recovery remained strong, there were some reservations that the UK advantage over the Euro-zone was set to narrow over the next few months. There were also fresh reports that the UK would face vaccine supply difficulties over the next few weeks which would slow the overall programme. This element of uncertainty was amplified by fresh doubts over the AstraZeneca vaccine.

It was, however, confirmed that the first Moderna vaccines would be administered in the UK on Wednesday with a total order of 17 million doses ordered.

Economic Calendar

07:45Markit/ADACI Svcs PMI(MAR)46.0048.80
07:55EUR German PMI Composite(APR)51.3056.80
07:55EUR German PMI Services(APR)45.9050.80
08:00Euro-Zone PMI Services(MAR)44.7048.80
08:00Euro-Zone PMI Composite(MAR)48.1052.50
08:30GBP PMI Services(MAR)56.80
12:00USD MBA Mortgage Applications-2.20%
12:30CAD Trade Balance(FEB)-1.40B1.41B
14:00CAD Ivey PMI(M/M)(MAR)60
19:00USD Consumer Credit(FEB)-1.31B
23:50JPY Current Account Total (Yen)(FEB)1.230B0.647B

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.