The dollar recovered slightly from 2-month lows, but sentiment remained weak.

There was muted further reaction to Wednesday’s Federal Reserve statement. US yields moved higher on the day, although narrow ranges prevailed. Risk appetite was slightly more cautious amid reservations over valuations. Wall Street equities posted tentative gains, but futures edged lower on Friday. In this context, Asian equities lost ground on Friday.

The dollar recovered slightly from 2-month lows, but sentiment remained weak. EUR/USD found support near 1.2100 with marginal net losses. Sterling was unable to make headway amid political reservations.

Commodity currencies overall drifted lower. The Canadian dollar remained strong and USD/CAD dipped to the lowest level for over 3

German unemployment increased 9,000 in April after a 6,000 decline the previous month and compared with expectations of a further decline of close to 10,000.

Euro-zone M3 money supply growth slowed to 10.1% in the year to March from 12.2% previously with private loans growth of 3.3% from 3.0% previously.

The Euro-zone industrial sentiment index strengthened sharply to 10.7 for April from 2.1 previously and well above market expectations with services-sector sentiment strengthening to 2.1 from -9.6 previously. The data continued to demonstrate some resilience in the economy which provided net Euro support.

German consumer prices increased 0.7% for April with the year-on-year rate increasing to 2.0% from 1.7% and above market expectations of 1.9%.

According to the flash reading, US GDP increased at an annualised rate of 6.4% for the first quarter of 2021 from 4.3% previously, although slightly below consensus forecasts of 6.7%. Real consumer spending increased sharply by 10.7% while the PCE prices index increased to 3.5% from 1.5% previously.

Initial jobless claims declined to a 12-month low of 553,000 in the latest week from a revised 566,000 previously, but marginally above consensus forecasts while continuing claims increased marginally to 3.67mn from 3.65mn.

Underlying dollar sentiment remained generally weak following the Fed statement, but there was a further net recovery from overnight lows. The US currency was able to recover some ground against commodity currencies and EUR/USD drifted towards 1.2100 before stabilising.

US confidence remained fragile on Friday with markets also wary over month-end position adjustment later in the day with EUR/USD around 1.2115.

US bond yields moved higher into Thursday’s New York open which helped underpin the US dollar and USD/JPY strengthened to highs around 109.20. There was no significant support from the US data releases and there was a tentative retreat around the Wall Street open amid choppy trading.

There was volatile trading surrounding precious metals which also had an impact on currencies and USD/JPY settled just below the 109.00 level.

Japanese data was stronger than expected with a 2.2% increase for industrial production for March while unemployment dipped to 2.6% from 2.9% previously, although Tokyo consumer prices declined 0.2% in the year to April and the market impact was limited.

The Chinese PMI manufacturing index dipped to 51.1 for April from 51.9 previously while the non-manufacturing index declined to 54.9 from 56.3, although this was above consensus forecasts. The Caixin PMI manufacturing index strengthened to 51.9 from 50.6 previously, but equities moved lower.

Treasuries drifted in tight ranges on Friday with USD/JPY held below 109.00 ahead of next week’s Golden Week holidays.

There were no significant domestic data releases on Thursday with fluctuations in global markets tending to dominate Sterling policy moves. Risk appetite was slightly less robust after the New York open which dampened support to some extent, although overall currency moves remained limited.

There were also reservations over UK political developments which hampered the UK currency. In particular, there were concerns over the Scottish elections next Thursday. Even if the impact is limited, there was caution over buying Sterling ahead of the poll.

GBP/USD was unable to make a challenge on the 1.4000 level and drifted below 1.3950 while GBP/EUR settled just below 1.1500.

There will be significant position adjustment on Friday, especially with a UK market holiday on Monday. In this context, there is scope for choppy trading, especially surrounding the London fix. Overall trends in risk appetite will also continue to be monitored closely.

There was a sharp increase in the latest business confidence data, although GBP/USD was unable to respond as it held below 1.3950.

Economic Calendar

07:30CHF Retail Sales (Y/Y)(MAR)-6.30%
07:45Consumer Spending MM(MAR)0.00%
08:00Unemployment Rate(FEB)9.00%10.20%
09:00GDP Prelim YY-6.70%-6.60%
09:00GDP Prelim QQ-1.90%
10:00Euro-Zone CPI (Y/Y)(APR)1.30%1.30%
13:30USD PCE Core Price Index (Y/Y)(MAR)1.60%
13:30USD PCE Core Price Index(M/M)(MAR)0.20%
13:30USD Personal Income (M/M)(MAR)-7.10%
13:30USD Personal Spending (M/M)(MAR)-1.00%
13:30CAD GDP (M/M)(MAR)0.50%0.70%
13:30CAD RMPI (M/M)(MAR)6.60%
14:45USD Chicago PMI(APR)66.3
15:00USD Michigan Consumer Sentiment(APR 01)86.5

*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.