Risk conditions were generally fragile on Thursday amid reservations over global coronavirus developments.
Risk conditions were generally fragile on Thursday amid reservations over global coronavirus developments. Wall Street equities rallied which helped calm wider investor concerns. Overall confidence improved on Friday with gains in US futures and Asian equities. Bond yields overall were little changed which helped dampen volatility.
The dollar posted fresh 4-month highs on US growth expectations before fading slightly. EUR/USD also dipped to fresh 4-month lows near 1.1760 before a marginal recovery. Sterling rallied during the day as worst-case EU vaccine restrictions looked to have been avoided with sharp EUR/GBP losses. Commodity currencies demonstrated some resilience and posted limited gains on Friday.
Euro-zone M3 money supply growth slowed slightly to 12.5% in the year to February from 12.3% previously while private loans growth was unchanged at 3.0%. The Euro was unable to make any headway ahead of the New York open and drifted lower amid an underlying lack of confidence in the Euro-zone outlook.
After posting gains, the dollar overall was mixed after the Wall Street open as commodity currencies attempted to stabilise.
Chicago Fed President Evans stated that he suspected the Fed would not tighten until 2024. He also stated that inflation was likely to weaken in 2022, especially if supply-side issues fade. Richmond Fed President Barkin had a similar message with comments that inflation will spike in the short term, but will come back down next year. San Francisco head Daly stated that the job market is still in a trough.
Fed Chair Powell reiterated that the central bank is strongly committed to inflation that averages 2% over time. Powell’s rhetoric was slightly stronger than previously as the board tries to convince markets that interest rates will not be increased. The Euro, however, remained under pressure and posted significant overall losses on the main crosses. In this environment, EUR/USD retreated steadily to fresh 4-month lows near 1.1760 with the dollar at fresh 4-month highs.
German Chancellor Merkel stated that the country is now in a new pandemic while French President Macron warned over new restrictions in the short term.
The dollar edged lower from the 4-month peak as risk appetite improved and EUR/USD edged higher to 1.1785, although underlying sentiment remained weak.
Initial jobless claims declined sharply to a 12-month low of 684,000 in the latest week from a revised 781,000 the previous week and well below consensus forecasts of 730,000. Continuing claims declined to 3.87mn from 4.13mn and also below consensus forecasts. There was, however, a renewed increase in pandemic assistance claims for the latest data.
The labour-market data maintained expectations of a strong labour-market recovery, robust US growth condition and also underpinned dollar sentiment. The fourth-quarter US GDP growth was revised slightly higher to 4.3% from the previous estimate of 4.1%.
US bond yields were held in tight ranges on Thursday with little net change, although the 10-year yield did find support just below the 1.60% level.
The dollar overall made headway with USD/JPY highs around 109.20 despite a slight retreat in equities.
There were some concerns over the Chinese outlook as the Beige Book cited evidence of de-leveraging within the economy. Risk appetite held steady in Asia with gains for US futures and USD/JPY settled around 109.25 with EUR/JPY around 128.70 as markets continued to monitor global risk trends.
The CBI retail sales index remained at -45 for March and weaker than expected of -36 as lockdown restrictions continued to undermine activity. There was greater optimism over the outlook for April with expectations that a gradual re-opening of the retail sector will get underway. Sterling remained vulnerable in early Europe, but gradually gained ground. There was an element of optimism over vaccine developments with hopes that the EU would avoid taking a confrontational stance.
EU leaders, in theory, backed the potential to block vaccine exports and Commission President Von der Leyen stated that AstraZeneca must catch up on promised deliveries before exporting doses elsewhere. Nevertheless, leaders fell short of explicitly backing the Commission given the need to protect supply chains.
Overall, there was relief over the overall tone which helped underpin pound sentiment. UK retail sales increased 2.1% for February following an 8.2% slide the previous month. The recovery was in line with expectations with a 3.7% annual decline. GBP/USD traded near 1.3750 with GBP/EUR around 1.1650.
|09:00||ECB Economic Bulletin|
|09:30||GBP PMI Construction(DEC, 2020)||55||54.7|
|10:00||Euro - Zone Retail Sales (M/M)(DEC, 2020)||-3.40%||-6.10%|
|10:00||Euro - Zone Retail Sales (Y/Y)(DEC, 2020)||0.80%||-2.90%|
|12:00||BOE MPC Vote Cut(FEB 01, 2020)||0|
|12:00||BOE MPC Vote Hike(FEB)||0|
|12:00||BOE MPC Vote Unchanged(FEB)||9||9|
|12:00||BoE QE Purchase Target(M/M)(FEB)||875B||875B|
|12:00||BoE Rate Decision(M/M)(FEB)||0.10%|
|13:30||Nonfarm Productivity (Q/Q)||5.60%||4.60%|
|15:00||USD Factory Orders(JAN)||1.00%|
|21:30||AUD AiG Performance of Service Index(DEC, 2020)||52.9|