Sterling posted significant net gains amid domestic and global recovery expectations.

Trading conditions were relatively subdued on Friday and the calendar is light on Monday. US Treasury yields overall were little changed which stifled wider volatility. Wall Street equities posted record highs with net gains for global bourses on recovery expectations, although US futures edged lower on Monday.

The dollar was unable to regain territory and the US currency index dipped to 1-month lows before a slight recovery. EUR/USD was held below 1.1900 and edged lower on Monday. Sterling posted significant net gains amid domestic and global recovery expectations. Commodity currencies were subjected to a correction but held firm amid the fragile US dollar.

The dollar attempted a slight recovery in early Europe on Friday but was unable to make significant gains and lost traction again ahead of the New York open amid slightly stronger Euro confidence as commodity currencies also reversed initial losses.

US housing starts increased to an annual rate of 1.74mn for March, close to the highest level for 15 years from a revised 1.46mn previously and above consensus forecasts of 1.61mn while building permits increased to 1.77mn from 1.72mn. The University of Michigan consumer confidence index strengthened to 86.5 for April from 84.9 previously, although markets had expected a larger increase. The expectations index was unchanged on the month which held back the overall index.

The US currency was undermined by further expectations that the Federal Reserve would maintain interest rates at extremely low interest rates. If inflation moves higher, real interest rates are liable to move further into negative territory which would sap US currency support.

Relatively narrow ranges prevailed with the US currency unable to make headway despite a limited correction weaker for commodity currencies. Overall, EUR/USD settled around 1.1985. There was little change in speculative positioning for the week. EUR/USD retreated slightly to 1.1960 on Monday with the dollar just above 3-week lows.

US 10-year yields edged higher on Friday, although the dollar was unable to make significant headway and USD/JPY was unable to regain the 109.00 level. USD/JPY traded around 108.80 as Wall Street equities posted limited net gains to fresh record highs.

Dallas Fed President Kaplan stated that unemployment was likely to retreat towards 4% by the end of the year and that policymakers should wean the economy off the super-easy monetary policy at the earliest opportunity. Fed Governor Waller stated that the US economy is ready to rip, but that higher inflation would be transitory.

There was no change in speculative yen positioning in the latest week with funds maintaining a substantial short position.

There were reports that President Biden would accept an increase in the corporate tax rate to 25% compared with the proposed 28%.

Japanese trade data reported that exports increased 16.1% in the year to March which provided some relief and there was some easing of pressure on chip supplies, but Osaka is set to request a state of emergency declaration due to increase coronavirus cases. The yen is on the US Treasury’s monitoring list for currency manipulation, which could deter yen selling to some extent. Reports indicated that Chinese investment company Huarong had met its bond payment which provided some relief. The dollar overall was unable to make headway and USD/JPY retreated to just below 108.50 at the European open.

The latest ONS data recorded a further decline in UK coronavirus infection rates with the estimate proportion of people infected in the latest week down to 1 in 500.

Germany also announced that the UK would no longer be considered a coronavirus risk zone from Sunday.

The UK currency gained an element of support from relative optimism over the UK outlook. GBP/USD managed to secure a break above 1.3800 and traded around 1.3840 at the New York close while GBP/EUR was back above 1.1500.

CFTC data recorded an increase in long non-commercial Sterling positions to 26,000 in the latest week from 20,000 previously. The increase provides some evidence that the sharp Sterling dip after the Easter holidays was seen as a buying opportunity on value grounds.

Rightmove reported an increase in asking prices for houses of 2.1% for April to a record high with an annual increase of 5.1% from 2.7% previously. Risk appetite held broadly firm on Monday which helped underpin the UK currency as GBP/USD edged above 1.3850 while GBP/EUR above 1.1550.

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