Sterling was subjected to a significant correction amid weaker global risk conditions.

Risk appetite was notably more cautious on Tuesday amid reservations over Asian coronavirus developments. Wall Street equities posted significant losses and European bourses posted sharp losses. US bond yields edged lower despite underlying inflation concerns.

The dollar recovered some ground amid the more defensive risk tone and edged higher from 6-week lows. EUR/USD retreated from 6-week highs to trade below 1.2050. Sterling was subjected to a significant correction amid weaker global risk conditions and GBP/USD selling near 1.4000. Commodity currencies lost ground as global equities retreated.

The Euro maintained a firm tone at the European open on Tuesday, but momentum slowed and pressure for a correction gradually increased while the dollar attempted a limited recovery after sharp losses. The US currency was still hampered by lower bond yields.

The single currency gained further net support from optimism that the EU would be able to improve the vaccination programme strongly over the next few weeks, especially with the agreement to secure additional supplies. Tight ranges prevailed with a lack of fresh data with EUR/USD retreating from 1.2070 into the New York open as the dollar attempted to fight back.

The US Philadelphia Fed non-manufacturing index strengthened to 36.3 for April from 27.4 the previous month. There was a slowdown in new orders growth with only a slight increase in unfilled orders. There was a solid increase in employment for the month and prices paid increased at a faster pace, although the rate of increase in prices received slowed on the month. Overall expectations of strong US growth were intact.

The dollar overall was able recover some ground later in the European session with a less confident risk tone surrounding risk appetite contributing to weaker commodity currencies and EUR/USD edged lower to the 1.2025 area. The dollar was still hampered by the lack of yield support.

Despite optimism over the vaccine programme, there were concerns over the short-term outlook with France reporting that the number of patients in intensive care had hit a 2021 high. Global risk conditions remained less confident which curbed potential dollar selling and EUR/USD settled around 1.2030.

US bond yields edged higher ahead of Tuesday’s New York open, although the 5-year yield held below 0.85% which limited the scope for a dollar recovery with USD/JPY selling interest on a move to above the 108.50 level.

There were further reports that Japan would declare a state of emergency in the Tokyo area due to coronavirus developments.

The yen gained fresh support later in the day as Wall Street equities moved lower and USD/JPY retreated towards the 108.10 area. There were no comments from Federal Reserve officials as markets waited for next week’s Federal Reserve policy decision.

Risk appetite remained more fragile on Wednesday with regional equity markets moving lower. Tokyo is expected to start a state of emergency on April 29th to combat increased coronavirus cases. US bond yields failed to recover amid losses in equity markets and there was an element of defensive demand for the Japanese currency. USD/JPY dipped to fresh 6-week lows below the 108.00 level before a slight recovery with EUR/JPY testing support close to 130.0.

There was little in the way of sustained reaction to the latest UK labour-market data with the smaller than expected increase in universal credit claims offset by a drop in payrolls for March. There was optimism over a domestic recovery which provided some net support.

GBP/USD was unable to sustain a move above the 1.4000 level in early Europe which helped encourage a correction after sharp gains with GBP/EUR hitting resistance around 1.1640.

The UK currency was also hampered by the weaker tone in equity markets with a sharp decline in the UK FTSE 100 index contributing to the less positive mood. Overall, GBP/USD dipped below 1.3950 with GBP/EUR losing some ground below 1.1600.

The UK consumer inflation rate increased to 0.7% for March from 0.4% previously, slightly below consensus forecasts of 0.8% while the underlying rate edged higher to 1.1% from 0.9%. GBP/USD traded around 1.3935 amid fragile global risk conditions while GBP/EUR settled around 1.1575.

Economic Calendar

07:00GBP CPI (Y/Y)(MAR)0.80%0.40%
07:00GBP CPI (M/M)(MAR)0.30%0.10%
07:00GBP Core CPI (Y/Y)(MAR)1.10%0.90%
07:00GBP PPI Output (Y/Y)(MAR)0.30%0.60%
07:00GBP PPI Core Output (Y/Y)(MAR)1.7
07:00GBP PPI Input (M/M)(MAR)0.60%0.60%
07:00GBP PPI Input (Y/Y)(MAR)4.40%2.60%
13:30Bank of Canada Core CPI (Y/Y)(MAR)1.20%
13:30Bank of Canada Core CPI (M/M)(MAR)0.30%
13:30CAD CPI (M/M)(MAR)0.70%0.50%
13:30CAD CPI (Y/Y)(MAR)1.30%1.10%
15:00CAD BoC Rate Decision0.25%

*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.