Sterling was unable to make net headway with GBP/EUR just below 1.1500.

Fed Chair Powell maintained a dovish stance with expectations of sustained monetary support. Bond yields increased only slightly on the day with inflation fears contained for now. Overall risk appetite held steady, although there were reservations over Chinese credit trends.  Wall Street indices edged lower and Chinese markets lost ground.

Expectations of a dovish Fed policy undermined the dollar as it retreated to 3-week lows. EUR/USD hit 3-week highs near 1.2000 before fading slightly. Sterling was unable to make net headway with GBP/EUR just below 1.1500.  Commodity currencies posted strong gains amid a fragile US dollar.

Euro-zone industrial production declined 1.0% for February, close to expectations, with a 1.6% annual decline. The dollar overall was unable to gain any traction ahead of the New York open with the Euro holding firm amid expectations that US real interest rates would remain negative.

The Euro was also supported by hopes that EU vaccine rates would improve strongly this quarter.

US import prices increased 1.2% for March to give an annual increase of 6.9% from 3.0% previously, maintaining some concerns over the risk of imported inflation.

Fed Chair Powell stated that it was highly unlikely that interest rates would be increased before the end of 2022, although the decisions will be outcome based. He again commented that the Fed wanted inflation marginally above 2% for a long time. It was also possible to get a low unemployment rate without increasing inflation and Powell also noted that it was essential to have the needs of people at the economic margin in mind.

He reiterated that the central bank would be likely to taper bond purchases well ahead of any increase in interest rates.

There was no shift in the underlying dovish rhetoric and the dollar remained on the defensive following the comments as it retreated to fresh 3-week lows. Futures prices indicated a slightly reduced chance of rate increases by the end of 2022 which stifled dollar support.

Vice Chair Clarida stated that inflation expectations are crucially important and that a persistent drift higher in expectations would indicate that policy needs to be adjusted. He also suggested that economic projections and Powell’s press conference will provide information to determine whether sufficient progress has been made.

Commodity currencies posted strong gains and EUR/USD pushed to highs near 1.1990. The dollar recovered slightly on Thursday amid credit concerns with EUR/USD near 1.1970.

US yields edged higher on Wednesday, although the dollar overall was unable to secure significant traction ahead of the New York open. Overall, USD/JPY dipped to lows around 108.75. Risk appetite was underpinned by strong earnings reports from the US banking sector.

The Federal Reserve Beige Book stated that confidence in the outlook was stronger due to increased vaccination rates. There were reports of labour shortages in key areas and districts expected price hikes in the short future. Some districts also reported that price increases were extremely robust.

Some districts expected that supply constraints and supply-chain issues would ease later in the year. Despite the inflation comments, bond yields were little changed later in the New York session which curbed a dollar recovery attempt and USD/JPY settled just below the 109.00 level.

There were underlying reservations surrounding Chinese headlines with further speculation that state-owned bad debt company Huarong could default on bond payments. Geo-political tensions were also significant with Taiwan stating that the Chinese military threatens regional peace and stability.

US futures edged higher, but the yen resisted any significant selling pressure with USD/JPY held below the 109.00 level.

Sterling was able to stabilise during Wednesday with underlying support from the vaccine programme and economic re-opening efforts. The UK will still have greater scope for economic recovery in the short term, although there were expectations of stronger EU vaccine rates which sapped potential Pound support.

Overall confidence in the global recovery was generally stronger with the UK currency boosted by gains across oil and commodities.

GBP/USD nudged above the 1.3800 level while GBP/EUR dipped below 1.1500 level. There was a lull in domestic data releases which curbed volatility to some extent. There were some reservations over global credit trends and the possibility of a sharp risk setback.

Economic Calendar

07:00Germany Harmonised CPI (M/M)(MAR)0.50%0.60%
07:00Germany Harmonised CPI (Y/Y)(MAR)2.00%1.60%
07:00Germany CPI (M/M)(MAR)0.50%0.70%
07:00Germany CPI (Y/Y)(MAR)1.70%1.30%
09:00CPI (EU Norm) Prelim YY(MAR)0.60%0.80%
09:00CPI (EU Norm) Prelim MM(MAR)0.10%0.30%
09:00CPI (EU Norm) Final YY*(MAR)1.00%0.60%
09:00CPI (EU Norm) Final MM*(MAR)-0.20%1.80%
13:30USD Core Retail Sales (M/M)(MAR)-0.10%-2.70%
13:30USD Advance Retail Sales (M/M)(MAR)-0.50%-3.00%
13:30NY Empire State Manufacturing Index(APR)17.4
13:30CAD Manufacturing Shipments (M/M)(FEB)2.50%3.10%
14:15USD Capacity Utilization(MAR)73.80%
14:15USD Industrial Production(MAR)-4.25%
15:00USD Business Inventories(FEB)0.30%
15:00NAHB Housing Market Index(APR)82
21:00USD TIC Net Long-Term(FEB)90.8B

*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.