UK confidence slide curbs Sterling support.

NATO promised further military aid to Ukraine and US President Biden stated that there would be retaliation in kind if Russia used chemical weapons.

Overall, there were increased fears over a prolonged conflict, especially with sanctions on Russia likely to have only a limited near-term impact and no sign of progress in peace talks. Oil and precious metals maintained a robust tone amid supply concerns and defensive demand.

There was a break from hawkish Federal Reserve rhetoric on Thursday and the US dollar posted a limited net correction weaker.

The Euro-zone data was stronger than expected which provided an element of relief and there was further demand for commodity currencies which limited support for the US currency.

EUR/USD was able to move back above the 1.1000 level.

The yen remained under severe pressure during Thursday as overall yield spreads continued to undermine support. USD/JPY surged to a fresh 6-year high just below 122.50, but there was a sharp correction in Asia as the Bank of Japan was slow to cap domestic yields. USD/JPY slumped to 121.20 lows from overbought levels before a rebound to 121.85 as yen sentiment remained depressed.

Chancellor The latest UK PMI business confidence data recorded a decline in the manufacturing index to a 13-month low of 55.5 for March from 58.0 previously and well below forecasts of 57.0. The services-sector index, however, strengthened to a 9-month high of 61.0 from 60.5 previously and comfortably above forecasts of 58.0. Cost pressures remained very strong and average prices increased at the fastest rate on record.

Overall business confidence, however, declined by the largest amount since the pandemic started with a slide to 17-month lows. Consumer confidence dipped to a 16-month low of -31 for March from -26 previously and retail sales declined 0.3% for February.

The Swiss National Bank held interest rates at -0.75% at the latest policy meeting, in line with expectations. The central bank repeated that it was prepared to intervene in currency markets, but there was a shift in rhetoric as it noted the overall currency situation and the inflation rate differential with other countries would be taken into consideration.

This shift suggested that it would tolerate gradual franc appreciation over time which underpinned the Swiss currency.

The Norges Bank increased interest rates by 0.25% to 0.75%, in line with market expectations. It signalled that a further hike was likely at the June meeting and expects that rates will increase more sharply to 2.50% by the end of 2023.

Better than expected Euro-zone PMI data provided an element of support for the Euro during Thursday. There were still important reservations surrounding the outlook given Ukraine fears.

Fed tightening expectations continued to underpin the dollar, but the US currency failed to make further headway. EUR/USD again found support just above weekly lows of 1.0960 and settled above 1.1000 on Friday. USD/JPY corrected sharply to 121.20 lows, but recovered to 121.80 with strong buying on dips.

Sterling was unable to make headway on mixed PMI data as business confidence dipped sharply and other data releases were weak.  GBP/USD edged back above 1.3200 as the US currency lost ground. GBP/EUR dipped below 1.1970.

Commodity currencies held a firm underlying tone with strong prices across the complex. AUD/USD posted gains to fresh 4-mnth highs around 0.7530. USD/CAD retreated to 2-month lows near below 1.2520.

A slight shift in National Bank rhetoric underpinned the Swiss franc. EUR/CHF was held around 1.0225 and USD/CHF dipped to 0.9275.

Economic Calendar

Expected Previous
07:00 GBP Retail Sales ex-Fuel (Y/Y)(FEB) 7.90% 7.20%
07:00 GBP Retail Sales ex-Fuel (M/M)(FEB) 1.20% 1.70%
07:00 GBP Retail Sales (M/M)(FEB) 1.00% 1.90%
07:00 GBP Retail Sales (Y/Y)(FEB) 9.10%
09:00 German IFO Business Climate Index(MAR) 96.5 98.9
09:00 German Business Expectations(MAR) 9610.00% 98.2
09:00 IFO - German Current Assessment(MAR) 98.6
15:00 USD Michigan Consumer Sentiment(FEB 22) 61.7
15:00 USD Pending Home Sales (M/M)(FEB) 1.00% -5.70%

*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.