GBP/EUR posted fresh 2022 lows below 1.1750.
The rhetoric from Russia surrounding Ukraine was less positive on Wednesday with comments from the Kremlin that there was nothing very promising in peace talks and that there is still much work to be done.
There was also evidence of increased fighting in the East of Ukraine as Russia looked to take control of the Donbas area. US experts also considered that Russian forces were regrouping.
There was, however, relief that the Kremlin also stated that it will not immediately demand that buyers pay for gas exports in roubles. The overall market impact was limited with wider economic developments tending to dominate.
German consumer prices surged 2.5% for March with the year-on-year increase jumping to 7.3% from 5.1% and substantially above market expectations of 6.3%. This was also the highest headline rate since the first quarter of 1974.
The much stronger than expected data will cause major alarm within the Bundesbank. The release also reinforced expectations that the ECB would have to adopt a more hawkish policy stance and look to raise interest rates.
The inflation data triggered another shift in money-market rates and German 2-year yields moved above zero for the first time since 2014. This shift in yields offered significant Euro support during the day.
Oil prices posted net gains on Wednesday amid expectations of tight global supplies. There was, however, sharp selling pressure after the New York close following reports that the IEA would sanction a very substantial release of oil reserves. The move will be led by the US with President Biden due to speak later on Thursday and an IEA meeting on Friday.
There were reports that the US was considering a release of 1.0mn bpd for a period of months.
Global benchmarks declined over 5.0% following the reports.
Bank of England Deputy Governor Broadbent stated that the appropriate path of interest rates is necessarily unpredictable given the unexpected shocks to the economy. Broadbent noted the very difficult combination of even higher inflation, but weaker demand. Overall, Broadbent was reluctant to make any commentary on the outlook for interest rates.
There is the potential for further choppy trading during Thursday with month-end position adjustment an important element, especially around the London fix. It is also the last day of Japan’s fiscal year which will have an impact on the yen.
Ukraine developments were less positive for the Euro during Wednesday with notable caution over the potential for progress in peace talks. Overall yield spreads, however, provided support, especially after the German inflation data. EUR/USD posted 3-week highs just above 1.1180 with only a limited correction.
Longer-term US bond yields moved lower during the day. Yen volatility eased slightly during the day with Cabinet Secretary Matsuno warned that forex moves are being watched closely. USD/JPY regained the 122.0 level in Asia, but dipped back below this level in early Europe on Thursday.
The Swiss franc was resilient on inflation differentials which will tend to underpin the currency with USD/CHF posting net losses to 0.9335.
Sterling attempted to stabilise but made little headway with confidence in the UK outlook fading. GBP/USD stalled above 1.3150 but held above 1.3100 on Thursday. GBP/EUR posted fresh 2022 lows below 1.1750.
Commodity currencies posted a net advance against the US dollar, but progress was limited and there was a fresh dip on Thursday as energy prices declined. AUD/USD was unable to hold above 0.7500 and retreated to near 0.7480. USD/CAD moved back above the 1.2500 level as oil prices dipped sharply.
|07:00||GBP Current Account||-15.6B||-24.4B|
|07:00||EUR German Retail Sales (M/M)(FEB)||1.80%||2.00%|
|07:00||EUR German Retail Sales (Y/Y)(FEB)||9.80%||10.30%|
|07:00||GBP Total Business Investment (Y/Y)||0.90%|
|07:00||United Kingdom GDP (Q/Q)||1.00%|
|07:00||United Kingdom GDP (Y/Y)||6.50%|
|07:00||GBP Nationwide House Prices (M/M)(FEB)||0.80%||1.70%|
|07:00||GBP Nationwide House Prices (Y/Y)(FEB)||13.50%||12.60%|
|07:30||CHF Retail Sales (Y/Y)(FEB)||5.10%|
|07:45||France - Consumer Spending MM(FEB)||-1.50%|
|07:55||German Unemployment Change(M/M)(MAR)||-33K|
|08:55||German Unemployment Rate(M/M)(MAR)||5.10%||5.00%|
|10:00||Euro-Zone Unemployment Rate(FEB)||6.80%|
|13:30||USD PCE Core Price Index(M/M)(FEB)||0.50%|
|13:30||USD PCE Core Price Index (Y/Y)(FEB)||5.20%|
|13:30||USD Personal Income (M/M)(FEB)||-0.30%||0.40%|
|13:30||USD Personal Spending (M/M)(FEB)||1.50%||2.10%|
|13:30||CAD GDP (M/M)(FEB)||0.10%||0.60%|
|13:30||CAD GDP (Y/Y)||3.26%|
|14:45||USD Chicago PMI(MAR)||56.3|
|21:30||AUD AiG Performance of Manufacturing Index(FEB)||53.2|
|23:50||JPY Tankan Large Manufacturing Outlook||10||13|
|23:50||JPY Tankan Large Manufacturing Index||12||18|