Sterling dipped sharply as risk appetite deteriorated with GBP/USD back below 1.4000.
Higher global bond yields dominated during Thursday with yield curves also steepening sharply.
Overall risk appetite was notably more fragile as higher yields hurt sentiment. Wall Street equities dipped sharply which pulled global markets lower as equities declined. There were sharp losses in Asia with the Nikkei 225 index declining 4.0%.
After initial losses to 7-week lows the dollar recovered strongly amid an element of defensive demand. EUR/USD peaked at 7-week highs just below 1.2250 before sliding to below 1.2150 as the dollar recovered. Sterling dipped sharply as risk appetite deteriorated with GBP/USD back below 1.4000.
After fresh 3-year highs, commodity currencies also weakened sharply as risk appetite weakened sharply with AUD/USD near 0.7800 from 0.8000 highs.
German consumer confidence recovered to -12.9 for February from -15.5 the previous month and stronger than consensus forecasts. Euro-zone industrial confidence recovered to -3.3 for February from -6.1 previously while the services-sector sentiment improved slightly to -17.1 from -17.7 as coronavirus restrictions continued to have an adverse impact. Euro-zone money supply growth strengthened to 12.5% in the year to January from 12.3% previously.
The German 10-year bond yield increased to -0.25%, the highest level for 11 months, which unsettled equity markets, but provided near-term Euro support.
The dollar came under renewed pressure ahead of the New York open with the Euro pushing higher and gaining fresh traction after a break above the 1.2200 level.
US initial jobless claims declined sharply to 730,000 in the latest week from a revised 841,000 the previous week and well below consensus forecasts of 835,000. Continuing claims also declined to 4.42mn from 4.53mn previously, although there was a renewed increase in pandemic emergency benefits for the latest week.
Durable goods orders increased 3.4% for January from 1.2% previously and above market expectations of a 1.1% gain with underlying orders increasing 1.4%.
Despite lower claims, the dollar secured only a limited reprieve following the data releases, but EUR/USD held comfortably above the 1.2200 level with a 7-week peak near 1.2250.
Commodity currencies retreat sharply later in the session as US equity markets posted substantial losses. In this environment, the Euro also lost ground to break back below the 1.2200 level. Italy also recorded the highest number of coronavirus cases since early January which caused some unease. Risk appetite remained notably more vulnerable on Friday which supported the dollar and EUR/USD was near 1.2150 with month-end positioning likely to be a significant factor later in the day.
US bond yields moved steadily higher during Thursday with the 10-year yield moving to fresh 12-month highs above 1.45%. Higher US and German bond yields had a significant impact in undermining yen demand. USD/JPY moved above the 106.00 level and held a firm tone despite losses elsewhere with highs just above 106.40.
Kansas City Fed President George stated that Fed policy is set to remain highly accommodative for some time and the Fed is positioned to be patient. She reiterated that the real level of unemployment was much higher than the official data.
Wall Street equities moved sharply lower after the European close which eased selling pressure on the Japanese yen and USD/JPY was held just above 106.00.
Japanese industrial production increased 4.2% for January, although there was still a 5.3% annual decline. The Bank of Japan still considered that risks to the economy and inflation are skewed to the downside. Governor Kuroda reiterated that there was no intention of shifting the 10-year yield target from around 0%.
President Biden’s $15 minimum wage measure was ruled out in the Senate which also dampened confidence in equity markets. The yen still gained only limited defensive support with USD/JPY around 106.20 in early Europe with EUR/JPY just below 129.0 as risk conditions and yields dominated.
Sterling held firm in early Europe on Thursday, but underlying pressure for a correction gradually increased during the day and losses accelerated after the US open.
There were market concerns over underlying UK fundamentals which curbed the potential for further buying even though underlying vaccine optimism continued.
Global risk conditions dominated later in the day with Wall Street equities moving sharply lower. Overall risk appetite also deteriorated which triggered a sharp Sterling correction as the UK currency remained sensitive to underlying global risk conditions. There were also some concerns over underlying UK fundamentals.
GBP/USD slid to test the 1.4000 level from 1.4180 highs as GBP/EUR corrected to near 1.1460. Overall risk conditions remained more fragile on Friday which further limited Sterling support. GBP/USD dipped to 1.3950 with GBP/EUR just above 1.1450. Markets remained wary over month-end position adjustment which could trigger Sterling volatility later in the day and the pound lost further support in early Europe.
|07:45||Consumer Spending MM(JAN)||19.00%||23.00%|
|07:45||GDP Detailed QQ||18.20%||-1.30%|
|08:00||CHF KOF Leading Indicator(FEB)||96.5|
|08:00||CHF GDP (Y/Y)||-3.30%||-1.60%|
|08:00||CHF GDP (Q/Q)||7.20%|
|13:30||USD PCE Core Price Index(M/M)(JAN)||0.10%||0.30%|
|13:30||USD PCE Core Price Index (Y/Y)(JAN)||1.30%||1.50%|
|13:30||USD Personal Income (M/M)(JAN)||0.60%|
|13:30||USD Personal Spending (M/M)(JAN)||-0.20%|
|13:30||CAD RMPI (M/M)(JAN)||3.50%|
|14:45||USD Chicago PMI(FEB)||63.8|
|15:00||USD Michigan Consumer Sentiment(FEB 01)||79.2||79.2|