There were no policy changes by the Bank of England.

US bond yields moved higher again on Thursday amid unease over the threat of higher inflation. Risk conditions were slightly less confident during the day as volatility increased. Wall Street equities corrected lower with significant Nasdaq selling. Asia equity markets also retreated amid reservations over US-China tensions.

The dollar recovered some ground amid higher yields and strong growth expectations.

There were no policy changes by the Bank of England. Sterling faded after posting gains in to the decision with weaker equities curbing support, but GBP/USD found support near 1.3900. Commodity currencies were unable to hold gains amid a dollar recovery but recovered from intra-day lows.

The Euro was unable to make further headway in early Europe on Thursday and posted a significant retreat. The US dollar recovered ground as domestic yields moved higher and underlying confidence in the Euro-zone remained notably fragile amid further concerns over coronavirus developments.

ECB President Lagarde stated that the step-up in PEPP will become more visible over time while risks to the growth outlook have become more balanced.

US jobless claims increased to 770,000 in the latest week from a revised 725,000 the previous week and well above consensus forecasts of 700,000. Continuing claims declined marginally to 4.12mn from 4.14mn previously, but slightly above market expectations. There was a sharp decline in pandemic assistance claims of 1.9mn on the week which helped underpin confidence in the labour-market outlook.

The Philadelphia Fed manufacturing index strengthened sharply to 51.8 for March from 23.1 the previous month. This was well above consensus forecasts of 22.5 for the month and the strongest figure for over 50 years as close to 60% of companies reported stronger activity.  There was also a surge in the new orders component with a solid increase in unfilled orders. Employment increased at a faster pace of on the month and price increases also accelerated with the prices paid index strengthening to the highest level since March 1980. Companies were also notably more optimistic over the six-month outlook.

The data bolstered expectations of stronger growth and inflation pressure within the economy which also provided net support to the US dollar.

The US currency posted significant net gains with EUR/USD retreating to lows below 1.1910. The Euro attempted to rally, but was unable to regain traction and retreated again after the European close. The US currency continued to gain support from higher yields on Friday with EUR/USD around 1.1920.

US bond yields moved sharply higher in early Europe on Thursday with the 10-year yield above 1.70% and the move in Treasuries helped underpin the dollar. USD/JPY was unable to make a move above 109.30 which triggered a significant correction. Equity markets moved lower and USD/JPY settled just below 109.00.

The Bank of Japan widened the target band to plus/minus 0.25% and also made changes to the ETF buying programme. The overall impact was measured given that the measures had been leaked in advance. Overall volatility also eased during the Asian session with the yen gaining only measured support.

Markets were monitoring US-China rhetoric as the top-level meetings continued amid underlying friction over domestic and foreign policy.

Overall, USD/JPY posted limited net losses to 108.80 at the European open with EUR/JPY around 129.70 as the yen maintained a slightly firmer tone.

The Bank of England held interest rates at 0.1% following the latest policy meeting and made no changes to the asset purchase programme. Both decisions were by a 9-0 vote and were in line with market expectations. The bank expressed cautious optimism over the outlook with the potential for the economy to recover more quickly than expected, although the committee also reiterated that the outlook was highly uncertain. In particular, the minutes pointed to a wide spread of opinions over demand and supply conditions. The MPC reiterated that there was a high barrier to policy tightening while Chief Economist Haldane remained optimistic over the outlook.

Markets had priced in a more optimistic stance and Sterling advanced into the meeting with the UK currency drifting lower following the release.

The UK MHRA stated that the benefits of the AstraZeneca vaccine outweigh the risks which provided some relief. With the dollar also regaining ground, however, GBP/USD dipped to lows at 1.3900 before a recovery while GBP/EUR retreated slightly from 12-month highs at 1.1700 to around 1.1688.

Weaker risk appetite and an increase in US yields also hampered Sterling with choppy trading. Sterling was slightly lower on Friday as equity markets were unable to gain traction with GBP/USD just above 1.3900 amid a slightly lower than expected government borrowing requirement.

Economic Calendar

07:00GBP Public Sector Net Borrowing(FEB)8.02B
07:00EUR German PPI (Y/Y)(FEB)2.00%0.90%
07:00EUR German PPI (M/M)(FEB)0.70%1.40%
12:30CAD Retail Sales Ex Autos (M/M)(FEB)-2.00%-4.10%
12:30CAD Retail Sales (M/M)(FEB)-2.50%-3.40%

*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.