US Dollar gains faded in Friday’s New York session, but there were still net gains as higher yields provided support.

Overall risk appetite was underpinned by strong liquidity, but there were fresh concerns over higher US bond yields.

Wall Street equities were little changed as the tech sector weakened. Chinese equity markets moved lower which dampened confidence in Asia.

US Dollar gains faded in Friday’s New York session, but there were still net gains as higher yields provided support. EUR/USD settled below 1.1950 amid reservations over Euro-zone fundamentals. Sterling overall lost ground as buying momentum faded, but with a recovery from lows against major pairs. Commodity currencies failed to sustain rally attempts and USD/CAD recovered slightly from

Euro-zone industrial production increased 0.8% for January, above expectations of 0.2%, with a marginal year-on-year increase of 0.1% after a 0.2% previously.

US producer prices increased 0.5% for March, in line with consensus forecasts, with a year-on-year increase of 2.8% from 1.7% previously while core prices increased 2.5% over the year. The Euro was unable to make any headway and gradually drifted lower as the US dollar secured fresh traction. The US currency was also supported by a fresh advance against commodity currencies in choppy trading conditions.

The University of Michigan consumer confidence index strengthened to 83.0 for March from 76.8 previously and above consensus forecasts of 78.5. There were significant increases in the current conditions and market expectations components for the month. There will be expectations of a further boost to confidence in the short term as the economic stimulus package takes effect.

Euro-zone confidence was hampered by reports that coronavirus restrictions would be tightened again in Italy in response to an on-going increase in new cases. EUR/USD dipped to lows around 1.1910 before regaining ground and climbed to 1.1950 late in the day as dollar overall lost ground again.

CFTC data recorded a decline in long Euro positions to 102,000 contracts in the latest week from 126,000 previously and the lowest figure since June 2020. The moderation in positioning will lessen the risk to some extent of further sharp position adjustment.

The dollar posted net gains on Monday as higher yields provided support and EUR/USD retreated to near 1.1930 as German Chancellor Merkel suffered defeats in two regional elections and vaccination reservations continued.

US bond yields continued to move higher on Friday with the 10-year yield increasing to a fresh 12-month high of 1.64%. The increase in yields provided fresh support for the US currency with a USD/JPY move back above the 109.0 level.

The yen overall remained on the defensive with USD/JPY holding just above 109.00 late in New York despite a retreat elsewhere.

CFTC data recorded a decline in long yen contracts to 7,000 in the latest week from 19,000 previously and the lowest reading since March 2020, lessening the risk of further yen selling on position adjustment, but yield moves remained important.

Chinese industrial production recorded an annual increase of 35.1% for the first two months of 2021, above expectations of 32.0% and retail sales increased 33.8% with big increases due to the slump last year. There were still reservations from the statistics bureau which dampened the positive impact.

US yields held firm on Monday which provided further dollar support and USD/JPY strengthened to just above 109.30 while EUR/JPY edged higher to near 130.50.

There was a measured reaction to the latest UK data releases with markets expecting a strong economic recovery later in the year. There were, however, some underlying concerns over the outlook for trade with concerns that there would be persistent friction in trade with the EU which will also slow the UK recovery.

Sterling gradually lost ground during the European session with a GBP/USD dip below 1.3900 while EUR/GBP dipped back slightly to 1.1650.

Risk conditions were slightly less confident during the day which also hampered potential support for the UK currency as global factors remained a key influence.

CFTC data recorded a small decline in long Sterling positions to 34,000 from 34-month highs of 36,000 previously which suggests buying from hedge funds may have lost momentum.

Although AstraZeneca has stated there is no evidence of blood clots, more countries have suspended use of the vaccine. There was no evidence of an impact on Sterling during the Asian session.

Economic Calendar

12:15CAD Housing Starts(FEB)282.4K
13:30NY Empire State Manufacturing Index(MAR)612.1
13:30CAD Manufacturing Shipments (M/M)(JAN)0.60%0.90%
20:00USD TIC Net Long-Term(JAN)121.0B
20:00NZD Westpac Consumer Sentiment106

*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.