Sterling was resilient on Friday despite negative comments from EU chief negotiator Barnier.
The Euro remained on the defensive for most of Friday amid a lack of confidence in the outlook with a firm dollar tone. EUR/USD dipped to 4-week lows near 1.0720.
Dollar gains faded late in the session as underlying supply remained high with EUR/USD recovering above 1.0800. The dollar lost further ground on Monday with the dollar index dipping just below 100.0 and EUR/USD near 1.0850.
Sterling was resilient on Friday despite negative comments from EU chief negotiator Barnier with solid risk appetite supportive.
The Bank of Japan announced it will buy corporate bonds, but the yen was resilient with USD/JPY.
The German IFO business confidence index declined to 74.3 for April from 85.9 the previous month and below consensus forecasts of 80.0. The current conditions index dipped to 79.5 from 92.9 with a less severe retreat in expectations to 69.4 from 79.5. The IFO was also generally very cautious over the outlook with only a slow and gradual return to normal economic activity likely unless there is a breakthrough in drug treatments or a vaccine.
The Euro remained on the defensive following the release with a gradual drift lower with fresh 4-week EUR/USD lows around 1.0720.
US durable goods orders declined 14.4% for March compared with consensus forecasts of an 11.9% decline, but the core retreat was held at 0.2% compared with expectations of a 5.8% decline as orders in the auto sector dipped sharply by 41%. Non-defence capital goods orders declined 33.4% on the month.
The April University of Michigan consumer confidence index dipped to 71.8 from 89.1 the previous month, although this was above consensus forecasts.
The dollar lost ground late in the session with EUR/USD rallying to highs around 1.0820 with evidence of pre-weekend position adjustment.
After the New York close, S&P affirmed Italy’s credit rating at BBB, although the outlook remain negative and there were further warnings over the fiscal outlook. Stability provided some Euro support. CFTC data recorded little change in the latest week with the long Euro position still at the highest since June 2018, limiting the scope any single-currency gains. The US dollar lost further ground on Monday, however, as aggressive Fed bond buying continued with EUR/USD around 1.0850.
On Friday, there was further speculation that the Bank of Japan would abandon its formal bond-buying target at the latest policy meeting. This would primarily provide greater flexibility over the medium term rather than signal a short-term policy change and the yen reaction was measured.
There was further uncertainty over the North Korean situation with reports that a Chinese medical team had been sent to treat leader Kim Yong un.
The dollar was again held in tight ranges and USD/JPY settled just above the 107.50 level amid a wider retreat later in New York.
CFTC data registered a further increase in long yen positions, limiting the scope for further Japanese currency gains, especially if risk appetite holds firm.
The Bank of Japan downgraded the short-term economic outlook with inflation likely to be weak. As expected, the bank removed limits on government bond buying and also announced that it would buy corporate bonds. The overall impact was limited as the measures were broadly in line with expectations. USD/JPY retreated to lows near 107.20, primarily due to firm risk appetite and wider US losses.
Sterling remained on the defensive in early Europe with the retail sales data reinforcing unease over underlying economic trends amid underlying demand fears.
After the latest round of trade talks, EU Chief Negotiator Barnier criticised the UK for not engaging seriously on some topics. Barnier also insisted that there will be no partnership trade deal with the UK unless agreement had been reached on the level playing field and fisheries areas. Barnier, however, stepped back from calling directly for a transition extension at this stage. There will be substantial pressure on the next phase of scheduled talks as time pressures intensify.
Sterling edged lower after Barnier’s comments and GBP/USD tested the 1.2300 area with GBP/EUR above 1.1450. There was a recovery later in New York with a GBP/USD move to just above 1.2350 as the US currency retreated and Sterling sentiment held steady.
CFTC data recorded a switch back into a negative speculative position, limiting the scope for renewed selling on the currency.
Prime Minister Johnson will return to work on Monday which helped underpin Sterling sentiment and there were rumours that announcement on a modification of lockdown rules could be made this week. GBP/USD advanced to near 1.2450 as the US currency lost ground.
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