Overall risk appetite turned more fragile again amid global coronavirus reservations.

There were no surprises from the ECB with rhetoric broadly dovish. Overall risk appetite turned more fragile again amid global coronavirus reservations. There was little overall change in US bond yields during the day. Wall Street equities lost ground with concerns over a potential increase in capital gains taxes.

The Euro dipped after the ECB meeting, but EUR/USD found support near 1.2000. The dollar recovered some ground as risk appetite eroded but failed to hold best levels. Sterling lost ground amid expectations of the Euro-zone narrowing the vaccine gap. Commodity currencies retreated sharply amid weaker equities but recovered some ground on Friday.

Narrow ranges prevailed ahead of Thursday’s New York open with the Euro holding a firm tone against the dollar and on the crosses. There were reports that Germany could be in a position to offer vaccines to all adults in May which would be a major boost for recovery prospects.

The ECB made no changes to interest rates following the latest policy meeting, in line with expectation, and in line with consensus forecasts. There were also no changes to the asset-purchase programme with the total envelope for PEPP bond purchases remaining at EUR1850bn which will be maintained until at least March 2022. As announced at the previous meeting, purchases will be at a faster pace this quarter before slowing.

Bank President Lagarde stated that vaccines underpin expectations of a firm rebound in economic activity, but also stated that the near-term future is bleak with a high degree of uncertainty. She also stated that the inflation rebound is due to transitory factors, while noting that a steady increase in inflation is likely over the medium term amid an unwinding of slack. Lagarde added that it would be good to move policy in tandem with the Federal Reserve, although this was not likely and there was no rhetoric surrounding any tapering of purchases. The Euro drifted lower following the ECB rhetoric amid a lack of hawkish factors and no mention of tapering.

There was also a fresh dip in equity markets which triggered significant losses for commodity currencies. As the dollar regained some ground, EUR/USD retreated to 1.2000. The dollar failed to generate momentum in Asia on Friday and EUR/USD settled around 1.2025 ahead of the latest Euro-zone PMI business confidence readings.

US initial jobless claims declined to a fresh 12-month low of 547,000 in the latest week from a revised 586,000 previously and below consensus forecasts of 615,000. Continuing claims declined slightly to 3.67mn from 3.71mn previously while there was an increase of close to 500,000 in pandemic claims for the week ahead.

USD/JPY found support below the 108.00 level ahead of Thursday’s New York open and US yields edged higher after the US jobless claims data, although the US currency still found it difficult to gain any traction. Existing home sales posted an annual rate of 6.01mn from a revised 6.24mn and slightly below consensus forecasts.

Risk appetite was slightly more cautious given unease over President Biden’s plans for higher capital gains tax rates and climate change policies.

USD/JPY was pinned just above 108.00 around the New York close as sentiment remained fragile.

Japan’s PMI manufacturing index strengthened to 53.3 from 52.7 previously with services unchanged at 48.3. There were reservations that a planned state of emergency would dampen confidence next month. US equity futures recorded some ground on Friday with USD/JPY trading below 108.00.

The April CBI industrial trends survey recorded a very strong improvement on a quarterly basis with the largest improvement in optimism since 1973. There was also a strong recovery in investment intensions which will bolster underlying confidence. On a monthly basis, however, the orders index edged lower to -8 from -5 the previous month and compared with consensus forecasts of a further net improvement.

Sterling was unable to make any headway in early Europe on Thursday and gradually lost ground into the New York open. Reports that the EU parliament would vote on the UK-EU trade deal next Tuesday had little impact. There was renewed speculation that the EU would narrow the vaccine gap with the UK substantially over the next few weeks which undermined Sterling support in relative terms.

The UK GfK consumer confidence index increased to a 13-month high of -15 for April from -16, but below consensus forecasts. Retail sales increased 5.4% for March, well above market expectations of 1.5%, while government borrowing was above forecasts. GBP/USD edged above 1.3850 with GBP/EUR around 1.1510.

Economic Calendar

Expected Previous
07:00 GBP Retail Sales ex-Fuel (M/M)(MAR) 1.90% 2.40%
07:00 GBP Retail Sales ex-Fuel (Y/Y)(MAR) 4.50% -1.10%
07:00 GBP Retail Sales (Y/Y)(MAR) 3.50% -3.70%
07:00 GBP Retail Sales (M/M)(MAR) 1.50% 2.20%
08:15 Markit Mfg PMI(APR) 56.5 59.3
08:15 Markit Serv PMI(APR) 45.5 48. 2
08:30 EUR German Manufacturing PMI (M/M)(APR) 60.8 66.6
08:30 EUR German PMI Services(APR) 46.2 51.5
09:00 Euro-Zone PMI Manufacturing(APR) 57.7 62.5
09:00 Euro-Zone PMI Services(APR) 46 49.6
09:00 Euro-Zone PMI Composite(APR) 49.1 53.2
14:45 USD Manufacturing PMI(APR) 59.3 59.1
14:45 USD Markit Services PMI(APR) 60 60.4
14:45 USD Markit PMI Composite(APR 01) 59.7
15:00 USD New Home Sales(MAR) 875B 775B
15:00 USD New Home Sales Change(MAR) -6.50% -18.20%
15:30 European Central Bank President Lagarde Speaks

*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.