The dollar retreated on quarter-end adjustment, but posted fresh gains on Thursday to near 5-month highs.

There were choppy conditions surrounding month-end trading on Thursday. Risk appetite held firm amid a slight retreat in bond yields with a measured reaction to Biden’s infrastructure plans. Wall Street indices posted net gains on underlying growth optimism.

The dollar retreated on quarter-end adjustment but posted fresh gains on Thursday to near 5-month highs. EUR/USD corrected from 4-month lows, but with selling on rallies above 1.1750. Sterling posted net gains amid UK recovery optimism.

Commodity currencies rallied, but the Australian dollar declined sharply on Thursday after weaker than expected Chinese data. Low-yield currencies lost ground with USD/CHF at 8-month highs.

German unemployment declined 8,000 for March following a 9,000 increase the previous month. The headline Euro-zone inflation rate increased to 1.3% for March from 0.9% previously and in line with consensus forecasts while the core rate declined to 0.9% compared with expectations of an unchanged rate of 1.1%.

ECB President Lagarde stated that we will give sufficient notice before unwinding stimulus measures. She added that the market can test us as much as they want and that the bank won’t be guided by short-term economic moves. Council member Villeroy criticized the slow rollout of the EU recovery fund and called for urgent action to speed-up execution of increased spending to take the burden off monetary policy.

Confidence in the Euro-zone outlook remained very fragile, especially after reports that France was considering a national lockdown to combat the increase in infections.

ADP reported an increase in private-sector payrolls of 517,000 for March after a revised 176,000 increase the previous month, although this was slightly below consensus forecasts of 550,000. The data overall maintained confidence in the labour-market outlook.

The Chicago PMI index recorded an increase to 66.3 for March from 59.5, above consensus forecasts of 60.7 and the strongest reading since July 2018. Employment increased on the month while prices increased at a faster pace on the month. Pending home sales declined 10.6% for February after a 2.4% decline the previous month.

The Euro gained some relief during the day with a limited correction after sustained losses while position adjustment also had a significant impact. The dollar also lost traction against commodity currencies with EUR/USD strengthening to 1.1760 before fading again. Coronavirus developments continued to sap single currency support with France announcing a 4-week lockdown. EUR/USD retreated to 1.1715 amid weaker than expected German retail sales data with the dollar close to 5-month highs.

Ahead of President Biden’s speech, the White House confirmed that there would be tax increases to fund the infrastructure plans.

USD/JPY posted 12-month highs just below 111.00 before fading amid pressure for a correction after strong gains while a retreat in bond yields also sapped support to some extent. There was choppy trading on positioning grounds with USD/JPY around 110.70 at the European close.

Biden’s announcement was less aggressive than expected with a $2.0trn infrastructure plan over 8 years. He confirmed that corporate taxes would be increased, but no mention of increased capital gains or higher marginal tax rates and the market reaction was measured.

Japan’s Tankan manufacturing index strengthened to 5 for March from -10 previously and above consensus forecasts of zero while the non-manufacturing index improved to -1 from -5. China’s Caixin PMI manufacturing index retreated to an 11-month low of 50.6 from 50.9 previously and below expectations of 51.4 while there was a small decline in employment and fastest rate of cost increases for 40 months.

Overall yen demand remained subdued with USD/JPY around 110.75 in early Europe on Thursday while EUR/JPY was held below the 130.00 level.

A lack of confidence in the Euro-zone outlook continued to provide net support for Sterling against the Euro. There was also optimism that the UK was on track for a notable re-opening during the second quarter which would have an important impact in boosting confidence in the recovery.

The UK posted gains into the London fix as position adjustment had a significant impact. The UK currency lost some traction following the fix, but there were expectations of a strong performance in April on seasonal grounds which triggered underlying currency support.

Overall, GBP/USD settled around 1.3800 while GBP/EUR dipped to re-test the 1.1750 support area. Relative growth expectations continued to underpin Sterling against the Euro on Thursday with GBP/EUR just above 1.1750 while GBP/USD retreated to around 1.3760.

Economic Calendar

Expected Previous
07:00 EUR German Retail Sales (M/M)(FEB) 2.00% -4.50%
07:00 EUR German Retail Sales (Y/Y)(FEB) -6.30% -8.70%
07:30 CHF CPI (M/M)(MAR) 0.40% 0.20%
07:30 CHF CPI (Y/Y)(MAR) -0.30% -0.50%
07:30 CHF Retail Sales (Y/Y)(FEB) -0.50%
08:45 Markit/ADACI Mfg PMI(MAR) 59.8 56.9
08:50 Markit Mfg PMI(MAR) 58.8 58.8
08:55 EUR German Manufacturing PMI (M/M)(MAR) 66.6 66.6
09:00 Euro-Zone PMI Manufacturing(APR) 62.4 62.4
09:30 GBP PMI Manufacturing(MAR 01) 57.9 57.9
11:00 OPEC Meeting
13:30 CAD Building Permits (M/M)(FEB) 8.20%
13:30 CAD RBC Manufacturing PMI(MAR) 54.8
13:30 USD Continuing Jobless Claims 3775K 3870K
13:30 USD Initial Jobless Claims 680K 684K
14:45 USD Manufacturing PMI(MAR) 58.5
15:00 USD Construction Spending (M/M)(FEB) 1.70%
15:00 US Manufacturing ISM(M/M)(MAR) 60.8

*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.