Sterling was boosted by firm global risk appetite and vaccine hopes with GBP/USD making another attempt at breaking above 1.3700.
Risk appetite held strong on Wednesday amid expectations of global reflation policies. Wall Street equities posted strong gains to fresh record highs and global bourses also posted strong overall gains.
The dollar demonstrated some resilience against European currencies which limited overall net losses. EUR/USD found support on approach to 1.2100 and posted a net advance on Thursday, but gains were limited. The Bank of Japan made no changes to policies with USD/JPY edging lower as the yen proved resilient.
Sterling was boosted by firm global risk appetite and vaccine hopes with GBP/USD making another attempt at breaking above 1.3700. Commodity currencies posted net gains in choppy trading as US dollar weakness dominated.
The Euro continued to take advantage of dollar weakness in early Europe on Wednesday, but there was EUR/USD selling interest above 1.2150 as resistance levels held. The Euro gradually retreated into the New York open with significant losses on key crosses and a EUR/USD retreat to just below 1.2100.
The US NAHB housing index retreated to 83 for January from 86 the previous month and compared with expectations of an unchanged reading. Higher yields and fresh coronavirus restrictions may have had an impact, although confidence remained very high in historic terms.
The US currency was undermined by strong risk appetite and expectations of a global economic rebound and the Euro was able to resist further losses. Volatility eased later in the session with EUR/USD settling just above 1.2100 as overall risk appetite remained strong.
The ECB will announce its latest policy decision on Thursday with no change expected in interest rates or the asset-purchase programme. The comment on the economic outlook from President Lagarde will be watched closely and rhetoric surrounding the Euro will also be an important element. Markets will also be watching any comments on yield-curve control following speculation that the bank would look to cap yields.
Markets will also watch the latest PMI business confidence data on Friday amid expectations of further contraction in the services sector. The dollar again lost ground in early Europe on Thursday amid robust risk appetite with EUR/USD around 1.2130 as commodity currencies secured fresh gains.
US equity futures held gains into Wednesday’s New York open amid positive risk appetite. Wall Street equities posted fresh record highs amid expectations of further strong fiscal support and a very accommodative Federal Reserve policy. Although equities moved higher, there was no increase in bond yields which curbed potential dollar support and it failed to make headway in the Japanese currency.
There was relief that President Biden’s inauguration passed with no significant incident. As expected, Biden issued a series of executive orders to reverse many of Trump’s policies with the mandating of mask wearing in federal buildings.
The Japanese yen maintained a firm overall tone despite strong global equities and USD/JPY dipped to lows just below 103.50.
The Bank of Japan held interest rates at -0.1% at the latest policy meeting, in line with consensus forecasts. The bank upgraded its economic forecasts for the next fiscal year, but also warned over the near-term outlook, especially for consumer spending. The yen maintained a firm overall tone following the decision despite gains in equities.
USD/JPY continued to edge lower to the 103.35 area as the Japanese currency again resisted selling pressure on the main crosses.
Sterling continued to make headway in Europe on Wednesday with the higher than expected inflation data continuing to provide some support amid speculation over a less dovish Bank of England stance. There was also further optimism over the UK vaccination programme while global risk appetite remained an important prop.
The Euro came under significant pressure and GBP/EUR rallied to 8-month highs above 1.1300 while GBP/USD also re-tested the important 1.3700 area. Another failure to break through helped trigger a significant correction.
Bank of England Governor Bailey was optimistic that the UK economy would not see the same amount scarring as was seen after the 1980’s recession. He also noted that inflation was still very low despite the increase in the recent data while there was a high degree of uncertainty over what people will do with increased savings. He also noted that no decision had been made on negative interest rates.
|11:00||GBP CBI Industrial Trends Orders (JAN)||-25|
|12:45||Deposit Facility Rate(JAN 01)||-0.5|
|12:45||ECB Rate Decision(JAN)|
|13:30||USD Building Permits(DEC, 2020)||1.600M||1.635M|
|13:30||USD Building Permits (M/M)(DEC, 2020)||5.90%|
|13:30||USD Housing Starts(DEC, 2020)||1.560M||1.547M|
|13:30||USD Housing Starts (M/M)(DEC, 2020)||1.20%|
|13:30||CAD New Housing Price Index (M/M)(DEC, 2020)||0.60%|
|13:30||USD Continuing Jobless Claims||5400K||5271K|
|13:30||USD Initial Jobless Claims||910K||965K|
|13:30||ECB Press Conference|
|15:00||Euro-Zone Consumer Confidence(JAN)||-15||-13.9|
|21:45||NZD CPI (Q/Q)||0.90%||0.70%|
|21:45||NZD CPI (Y/Y)||1.70%||1.40%|