The dollar lost further ground with fresh 2-week lows as yields declined.

Fed Chair Powell maintained a dovish stance with the central bank demanding a series of strong employment reports. US bond yields continued to retreat following the comments with 2-week lows. Wall Street equities posted record highs amid dovish Fed rhetoric. Asian equities were more cautious on Friday, although overall volatility was contained.

The dollar lost further ground with fresh 2-week lows as yields declined. EUR/USD moved above the 1.1900 level before a corrective retreat. Sterling lost further ground despite strong data amid reservations over the AstraZeneca vaccine and shift to more defensive currencies. Gains for commodity currencies were unconvincing with renewed losses in Asia on Friday.

German factory orders increased 1.2% for February, in line with consensus forecasts. The Euro held a steady tone in early Europe on Thursday with a further element of hope that there would be a notable increase in EU vaccination rates which would boost the potential for economic recovery.

Minutes from the ECB March policy meeting stated that policymakers did not want to give the impression of being overly focussed on bond yields.

The dollar was unable to make any headway following relatively dovish Fed minutes and the Euro posted limited net gains.

US initial jobless claims increased to 744,000 in the latest week from a revised 728,000 previously and above consensus forecasts of 680,000. Continuing claims edged lower to 3.73mn from 3.75mn, but also above market expectations while pandemic assistance claims declined slightly on the week.

The dollar was unable to gain any support into the European close with some renewed reservations over the underlying labour-market trends.

Fed Chair Powell stated that monetary and fiscal policy, allied with the vaccination programme, is creating a brighter outlook. He also noted, however, that he wants to see a string of months like the latest strong jobs report and that the unevenness of the recovery is a serious issue.

Powell added that the Fed needs to keep supporting the economy and there is a risk of a setback to the recovery if there is a renewed pick up in cases. He reiterated that short-term increases in inflation would be transitory. The rhetoric overall remained dovish and the dollar retreated to fresh 2-week lows.

EUR/USD pushed back above the 1.1900 level to 2-week highs around 1.1925 and commodity currencies posted tentative net gains. German industrial production was weaker than expected with a 1.6% February decline. The dollar resisted further selling on Friday with EUR/USD just below the 1.1900 level as tight ranges prevailed.

The dollar was unable to make headway in early Europe on Thursday and then declined sharply at the New York open as US yields continued to move lower. The 10-year yield dipped to 2-week lows around 1.63% which undermined the US currency and USD/JPY retreated sharply to lows at 109.00.

There was little change in yields following Powell’s comments with the dollar recovering slightly as stronger equity markets curbed potential demand for the Japanese yen as the S&P 500 index posted a fresh record high. San Francisco Fed President Daly maintained the dovish tone from a majority of officials with comments that the Fed must see and not just expect substantial further progress in achieving the goals.

Chinese data recorded a 4.4% increase in producer prices in the year to March from 1.7% previously, maintaining unease over upward pressure on costs.

Overall bond yields were little changed in Asia and equity futures edged higher.  Tight ranges prevailed with USD/JPY posting limited net gains to around 109.40 and EUR/JPY just above 130.00.

The UK PMI construction index strengthened to 61.7 for March from 53.3 the previous month which was well above consensus forecasts of 55.0 and the strongest reading since September 2014. There was a further strong increase in new orders as confidence remained strong while employment also increased. Price pressures also increased sharply during the month with the fastest rate of increase in input prices since 2008.

The data-maintained confidence in the UK recovery outlook, but Sterling overall was unable to secure significant support as the sharp decline this week continued to undermine sentiment. The inability to advance on robust data illustrated an important danger sign for Sterling bulls.

There were further net uncertainties over the UK vaccine programme and a suspicion that markets had been too pessimistic over the Euro-zone outlook. Sterling was unable to recover ground on Friday amid further reservations over the AstraZeneca vaccine with a GBP/USD retreat to near 1.3700.

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