Sterling gained an element of support from strong gains in equity markets and firm overall risk conditions.

US retail sales data was much stronger than expected with jobless claims also declining sharply, boosting expectations of very strong growth. US bond yields moved significantly lower despite the strong data.  Overall risk appetite held firm amid optimism over Fed support.  Wall Street indices posted further gains to fresh record highs with global bourses making headway.

The dollar was unable to draw significant support from the data given the dip in yields and retreated to 4-week lows. EUR/USD did hit selling near 1.2000 and edged lower on Friday. Lower yields limited selling on the yen and Swiss franc. Sterling struggled to gain any support from favourable global conditions. Commodity currencies posted 3-week highs amid strong equities and lower yields.

The single currency held a firm tone ahead of Thursday’s New York open, but EUR/USD was unable to make a challenge on the 1.2000 level.

The Italian government announced a stimulus package worth EUR40bn which helped underpin Euro sentiment, but with strong resistance close to 1.2000.

US retail sales surged 9.8% for March following a revised 2.7% decline the previous month and well above consensus forecasts of a 6.3% gain. Underlying sales increased 8.4% on the month after a 2.5% previously and also well above market expectations while the control group posted a 6.9% gain.

Spending was boosted by the receipt of personal payment cheques and favourable weather as February’s weather-related slump in Texas was reversed.

Initial jobless claims declined to a 12-month low of 576,000 in the latest from a revised 769,000 previously and well below consensus forecasts of 700,000. There was also a decline in continuing claims and pandemic claims also declined by over 1.0 million for the latest week.

The Philadelphia Fed manufacturing index strengthened to 50.2 for April from a downwardly-revised 44.5 for March and close to record highs. There was further strong growth in new orders and output for the month with employment also increasing strongly. Upward pressure on input prices eased only slightly while prices received increased at a faster pace. The New York Empire manufacturing index also strengthened to 26.9 for April from 9.1 previously with a surge in new orders and stronger inflation pressures. Manufacturers in New York and Philadelphia both remained very confident over the outlook.

Despite the notably strong data, US yields declined after the data which limited potential dollar support and the US currency posted only a slight net advance amid expectations that the Federal Reserve would maintain very low interest rates with EUR/USD around 1.1970. The dollar secured a marginal advance on Friday, but still near 4-week lows with EUR/USD around 1.1965.

US yields retreated earlier in the week after stronger than expected inflation data and there was an even stronger reaction after the retail sales releases with Treasuries gaining sharply. The 10-year yield dipped to near 1.56% with the 5-year rate below 0.85%.

The industrial production data was less impressive with the March rebound held to 1.4% after a revised 2.6% decline the previous month while the NAHB housing index edged higher to 83 from 82.

Cleveland Fed President Mester stated that the economy is still far from the employment goal and that she is not concerned over inflation moving too high. The overall Fed rhetoric remained dovish. Lower yields had an important impact in undermining dollar support with USD/JPY weakening to near 108.60. The yen was also broadly resilient despite fresh gains in Wall Street indices to record highs.

Chinese GDP increased 18.3% in the first quarter of 2021 and the retail sales data was stronger than expected with a 34.2% annual increase. The industrial data failed to meet expectations, however, with annual growth of 14.1%. Reaction was muted with USD/JPY trading around 108.80 as bond yields edged higher.

There were no significant UK data releases on Thursday with markets waiting for evidence of the recovery potential following the partial re-opening of the economy.

Sterling gained an element of support from strong gains in equity markets and firm overall risk conditions during the day as the FTSE 100 index posted 13-month highs on the day. There were still reservations over trade friction with the EU and uncertainty over the Northern Ireland protocol. There were also expectations that the UK’s early-vaccine advantage would fade, especially if the EU can strengthen its performance.

GBP/USD hit selling interest above 1.3800 and settled below this level while GBP/EUR around 1.1500. The underlying performance was unimpressive given the favourable global backdrop with GBP/USD below 1.3750 on Friday.

Economic Calendar

07:30CHF PPI (M/M)(MAR)0.30%
07:30CHF PPI (Y/Y)(MAR)-1.10%
10:00Euro-Zone CPI (Y/Y)(MAR)0.90%1.30%
10:00Euro-Zone Core CPI (Y/Y)(MAR 01)1.10%0.90%
10:00Euro-Zone Trade Balance(FEB)6.3B
13:30USD Building Permits(MAR)1.750M1.720M
13:30USD Building Permits (M/M)(MAR)-8.80%
13:30USD Housing Starts(MAR)1.560M1.421M
13:30USD Housing Starts (M/M)(MAR)-10.30%
13:30CAD Foreign Securities Purchase(FEB)1.27B
13:30CAD Wholesale Sales (M/M)(FEB)5.00%4.00%
15:00USD Michigan Consumer Sentiment(APR 01)84.9

*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.