The dollar was unable to recover ground and retreated to 7-week lows as Fed expectations of a dovish Fed undermined demand.

Overall risk appetite has held steady amid expectations that low US interest rates would drive markets, although underlying tensions increased. Although US bond yields edged higher on Friday, the moves did not disrupt markets. Wall Street equities posted net gains but retreated from peak levels. Asian equities faded late in Monday’s session.

The dollar was unable to recover ground and retreated to 7-week lows as Fed expectations of a dovish Fed undermined demand.  The Euro posted net gains to 2-month highs just above 1.2100. Sterling was unable to make headway overall but did advance to 1.3900 against the dollar. Commodity currencies eventually posted net gains as the US currency lost ground.

According to flash PMI data, the French PMI data was stronger than expected with the services sector returning to expansion. German manufacturing data remained close to record highs and there was a marginal expansion for services, although it was slightly below consensus forecasts.

The Euro-zone flash PMI manufacturing index strengthened to a record high of 63.3 for April from 62.5 and above expectations of 62.0. The services-sector index also increased to an 8-month high of 50.3 from 49.6 and above consensus forecasts.

The data underpinned evidence of Euro-zone resilience despite lockdown restrictions and reinforced expectations of recovery over the next few months.

There were reports that the ECB is expecting a tough decision on the bond-buying plan at the June meeting with diversity in views with economic optimism contrasting with others seeing the need for caution. Overall, EUR/USD posted an advance to above 1.2050 at the New York open.

The US PMI manufacturing index strengthened to a 2-month high of 60.6 for April from 59.1 previously and slightly above consensus forecasts. The services-sector index also posted a record high of 63.1 from 60.4 previously with strength in new orders and employment.

The data-maintained confidence in the growth outlook, but the dollar was unable to respond and EUR/USD strengthened to test 1.2100 at the New York close.

CFTC data recorded a renewed increase in long non-commercial Euro contracts in the latest week, the first increase for five weeks.

The dollar was unable to regain territory on Monday amid expectations that the dovish Fed policy would be maintained at this week’s policy meeting. EUR/USD traded at 2-month highs just above the 1.2100 level as US yields continued to limit US dollar support with the dollar index trading at fresh 7-week lows.

US bond yields were little changed in early Europe on Friday and the dollar was unable to make headway with a sharp USD/JPY retreat to near 107.50 just after the New York open. Wall Street equities moved higher and there was a sharp recovery into the London fix with the dollar strengthening to above the 108.00 level.  Wider US currency losses dragged USD/JPY back below the 108.00 level later in the New York session.

CFTC data recorded little change in the latest week with a substantial short yen position. The Japanese government lost three by-elections over the weekend, increasing speculation that there could be a shock in national elections due by October 21st.The Bank of Japan will announce its latest policy decision on Tuesday with no policy changes expected at this meeting. Markets will be monitoring comments on the outlook, especially given the on-going coronavirus emergency.

Overall risk appetite held steady on Monday, but the dollar was unable to make headway amid wider pressure and USD/JPY settled around 107.80.

According to the flash data, the UK manufacturing PMI index strengthened to 60.7 for April from 58.9 previously. This was above consensus forecasts of 59.0 and the strongest reading since 1994, although the data was boosted by further supply-chain disruptions. The services sector strengthened to 60.1 from 56.3 previously and just above market expectations. Sterling failed to draw support from the data, especially as there had been some speculation that the services data would be even stronger.

The UK currency was also hampered by expectations that there would be a significant catch-up by the Euro-zone over the next few months.

In comments over the weekend, Bank of England Deputy Governor Broadbent commented that he expects very rapid growth over the next two quarters, especially with the impact of reduced savings, although he also warned that inflation will be less predictable, especially with capacity issues.

GBP/USD traded close to 1.3900 on Monday amid the weaker dollar, but did hit resistance above this level with GBP/EUR correcting to near 1.1470.

Economic Calendar

09:00German Business Expectations(APR)95100.4
09:00IFO - German Current Assessment(APR)91.393
09:00German IFO Business Climate Index(APR)93.296.6
13:30USD Durable Goods Orders (M/M)(MAR)0.80%-1.20%
13:30USD Durable Goods Orders Ex Transportation(MAR)-0.80%
15:30USD Dallas Fed Manufacturing Business Index(APR)28.9
20:00Retail Sales (Y/Y)7.50%

*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.