The dollar lost ground as US yields moved lower and dipped to 6-week lows as underlying sentiment remained weak.
There was a further focus on US and global bond yields during the day with a limited decline during the day.
Overall risk conditions were less supportive despite strong liquidity growth. Wall Street equities lost ground amid a sharp retreat in the tech sector. Global equities were mixed as commodity sectors remained a key influence.
The dollar lost ground as US yields moved lower and dipped to 6-week lows as underlying sentiment remained weak. EUR/USD moved above 1.2150 and held firm at 4-week highs on Tuesday. After an early correction, Sterling posted renewed gains on economic re-opening with GBP/USD at fresh 34-month highs.
Commodity currencies maintained a strong tone with AUD/USD at 3-year highs.
The German IFO business confidence index strengthened to a 5-month high of 92.4 for February from a revised 90.3 the previous month and above consensus forecasts of 90.5. The current assessment strengthened to 90.6 from 89.2 while there was a stronger increase in the expectations component to 94.2 from 91.5 previously. IFO economist Wohlrabe stated that the economy is looking towards an upswing, especially in the industrial sector while production plans have been revised significantly higher which underpinned confidence surrounding the German economy.
There were reports that the Italian ban on regional movement would be extended until March 27th, maintaining some reservations over Euro-zone developments.
The Chicago Fed national activity index strengthened slightly to 0.66 for January from 0.52 previously, although markets remained focussed on yields.
ECB President Lagarde stated that the bank was closely monitoring the evolution of longer-term yields and that the bank remained committed to preserving favourable financing conditions over the pandemic period. Council member Villeroy stated that there no risk of economic overheating. The comments triggered some speculation that the bank would look to exert some kind of yield curve control, although there was little impact on the Euro.
The dollar attempted to stabilise, but gradually lost ground, especially with renewed gains in commodity currencies and EUR/USD moved higher to just above 1.2150 at the European close. The dollar was unable to regain ground on Tuesday and retreated to 6-week lows as EUR/USD traded at 4-week highs around 1.2170.
US yields held firm in early Europe on Monday, but gradually retreated later in the day which limited support for the US currency. The yen was able to gain renewed demand on the crosses and USD/JPY dipped to lows near 105.00 after the New York open amid a wider slide in US sentiment.
The US currency was unable to recover ground into the European close and USD/JPY continued to test the 105.00 area as wider US currency moves dominated.
Markets will be monitoring Fed Chair Powell’s testimony closely on Tuesday with a focus on monetary and fiscal policy. In particular, there will be a focus on any shift in rhetoric surrounding the potential for early tapering. Trends in yields will remain a key element for dollar direction.
In comments on Tuesday, Chinese state media stayed that the economic recovery would pave the way for monetary policy normalisation. Higher interest rates would tend to support the Chinese yuan and curb potential dollar demand, although equity markets could also be undermined.
US equity futures posted gains on Tuesday which dampened yen demand to some extent and the USD/JPY rallied slightly to 105.15.
Sterling was subjected to a correction in early Europe on Monday with a GBP/USD dip below the 1.4000 level. Underlying sentiment held firm during the day with expectations of further capital inflows into the UK. In this context, the UK currency found strong support on dips and posted net gains into the New York open.
Prime Minister Johnson laid out the roadmap for easing coronavirus lockdown restrictions and stated that the aim was to end all restrictions in England before the end of June. The UK currency secured a further lift following the outline with GBP/USD highs near 1.4080 and EUR/GBP rallied to fresh 11-month highs around 1.1580.
Bank of England MPC member Vlieghe stated that the level of interest rate similar to those before the financial crisis may not be seen in his lifetime. He also indicated that the transmission mechanism of negative rate might be larger in FX markets in the UK case. There was no currency impact and Sterling held a firm tone on Tuesday with GBP/USD at fresh 34-month highs just above 1.4080 while GBP/EUR remained just above the 1.1550 level.
UK unemployment increased to 5.1% from 5.0%, in line with expectations with a decline in the claimant count and slow recovery in weekly hours. The UK currency held steady after the data with GBP/USD around 1.4070 amid pressure for at least a limited correction after a run of very strong gains during the month.
|07:00||GBP Average Earning Including Bonus(DEC, 2020)||4.10%||3.60%|
|07:00||GBP Claimant Count Change(M/M)(JAN)||35.0K||7.0K|
|07:00||GBP Unemployment Rate(DEC, 2020)||5.10%||5.00%|
|07:30||CHF PPI (M/M)(JAN)||0.50%|
|10:00||Euro-Zone Core CPI (Y/Y)(JAN 01)||1.40%||1.40%|
|10:00||Euro-Zone CPI (Y/Y)(JAN)||0.90%||0.90%|
|10:00||Euro-Zone CPI (M/M)(JAN)||0.20%||0.30%|
|11:00||CBI Distributive Trades Survey(FEB)||-28||-50|
|14:00||US House Price Index (M/M)(DEC, 2020)||1.00%|
|15:00||USD CB Consumer Confidence(FEB)||90||89.3|
|15:00||Fed's Chair Powell Testifies|