Global risk appetite attempts to recover.

Risk appetite remained very vulnerable in European trading on Monday with further concerns over the outlook for the global economy and the impact of more aggressive central bank action to combat inflation.

Chinese coronavirus developments also increased further with mass testing in Beijing to contain the latest outbreak.

There was, however, a tentative initial recovery after China cut reserve ratio requirements and a recovery on Wall Street also helped stabilise wider risk conditions later in the day.

There was a further recovery in Asian trading on Tuesday as equity markets secured a limited recovery, but overall confidence remained fragile.

The German IFO business confidence index recovered to 91.8 for April from 90.8 the previous month and well above consensus forecasts of 89.0. The current conditions index improved to 97.2 from 95.0 while the expectations component also rebounded to 86.7 from 85.1 with both figures well above expectations.

The IFO stated that the mood in the economy had stabilised at lower levels, but also noted that the lockdowns in China will have an impact on the German economy in the coming months.

Markets remained uneasy over developments in Ukraine, especially with more hawkish rhetoric from US and Russian officials after the US defence Secretary warned that it wanted the Russian military capability to be reduced.

Russian foreign minister Lavrov also warned over the risk of escalation and the use of nuclear weapons. Markets overall were even more concerned over the threat of an extended conflict.

The CBI industrial trends index dipped to 14 for April from 26 previously and below market expectations of 21. The survey recorded a slowdown in output growth while business optimism declined at the sharpest rate since April 2020.

Inflation pressures remained strong with average costs increasing at the fastest rate since July 1975 while domestic prices increased at the fastest rate since October 1979.

Bank of Canada Governor Macklem testified to parliament on Monday. Macklem reiterated that inflation was too high and that the bank will act forcefully, especially with evidence of excess demand in the economy.

He indicated that the bank would continue to raise rates by increments of at least 50 basis points and the bank could consider even larger moves.

Japanese Finance Minister Suzuki stated that there was no truth to reports of a joint US/Japan discussion on intervention which curbed the potential for further yen buying. Risk appetite also recovered which curbed yen buying, although there was still a lack of conviction over yen selling.

Better than expected German data failed to provide significant support for the Euro. There were further reservations over the Ukraine situation and risk of prolonged conflict which will have a negative impact on the Euro-zone outlook. EUR/USD dipped to 2-year lows at 1.0700 before a marginal recovery to 1.0725 on Tuesday. A decline in long-term US yields limited support for the dollar.

The dollar index retreated slightly from fresh 25-month highs. Fragile risk conditions also provided an element of yen support. USD/JPY dipped to lows just below 127.50 before a recovery to around 128.00.

Weaker risk appetite underpinned the Swiss franc. EUR/CHF dipped below 1.0300. USD/CHF remained close to 22-month highs just below  0.9600.

Sterling sentiment remained notably weak amid fears over an economic downturn. GBP/USD dipped further to 17-month lows at 1.2700 before a slight recovery. EUR/GBP retreated from intra-day highs and traded just above 0.8400.

Commodity currencies recovered from intra-day lows as equities recovered. AUD/USD recovered to 0.7225 from lows below 0.7140. Hawkish Bank of Canada rhetoric underpinned the Canadian dollar with USD/CAD dipping just below 1.2700.

Economic Calendar

Expected Previous
07:00 CHF Trade Balance(MAR) 5.953B
13:30 USD Durable Goods Orders Ex Transportation(MAR) 0.60% -0.60%
13:30 USD Durable Goods Orders (M/M)(MAR) 1.00% -2.10%
14:00 US House Price Index (M/M)(MAR) 1.60%
14:00 US House Price Index (M/M)(MAR) 18.40% 19.10%
15:00 USD CB Consumer Confidence(APR) 106 107.2
15:00 USD New Home Sales(MAR) 775K 772K
15:00 USD New Home Sales Change(MAR) -2.00%

*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.