The dollar remained on the defensive but recovered slightly from fresh 7-week lows.

Overall risk appetite was little changed on Monday with narrow ranges prevailing ahead of Wednesday’s Fed statement. US bond yields were mixed with little net change. Wall Street equities posted measured net gains to fresh record highs. Sentiment was more cautious in Asia on Tuesday amid regional coronavirus concerns.

The dollar remained on the defensive but recovered slightly from fresh 7-week lows. EUR/USD failed to hold above 1.2100 to trade around 1.2075. Sterling was little changed with GBP/USD selling above 1.3900. Commodity currencies posted net gains amid US vulnerability before stabilising on Tuesday.

The German IFO business confidence index edged higher to 96.8 for April from 96.6 the previous month, although this below consensus forecasts of a stronger improvement to 97.8. The current conditions index strengthened to 94.1 from 93.1 previously, although there was a small decline in the expectations component to 99.5 from 100.3. The IFO stated that the industrial sector was booming, but production bottlenecks are hampering the recovery.

There were reports that the German government will raise the 2021 GDP growth forecast to 3.5% from 3.0%.

After the better than expected PMI data released last week, there was some disappointment over the IFO data and the Euro lost momentum following the release with a EUR/USD retreat back below the 1.2100 level.

US durable goods orders increased 0.5% for March after a revised 0.9% decline the previous month, but well below consensus forecasts of a 2.5% increase. Underlying orders increased 1.6% on the month which met market expectations and there was little impact from the data.

There was an element of caution ahead of Wednesday’s Federal Reserve policy statement even though markets expect that the statement will be little changed from the previous month. Expectations of sustained dovish rhetoric from Chair Powell continued to curb underlying dollar support.

Commodity currencies posted significant gains on the day and EUR/USD settled around 1.2090 as the dollar failed to gain any traction. The US dollar was able to resist further selling on Tuesday with EUR/USD close to 1.2075. There was also some wariness of choppy trading surrounding the month-end period.

US bond yields were unable to make headway ahead of the New York open. The dollar did, however, benefit from a wider recovery and USD/JPY strengthened to the 108.00 area from earlier lows around 107.65.

The Dallas Fed manufacturing index strengthened to 37.3 for April from 28.9 previously. Wages increased at a faster rate on the month and pricing pressures increased.

The data continued to fuel expectations that underlying inflation pressures were increasing in the economy.

USD/JPY held tentative net gains to the 108.10 area at the New York close as Wall Street indices posted fresh record highs.

The Bank of Japan made no policy changes following the latest meeting with interest rates held at -0.1% and the 10-year bond yield target around 0.0%. There was a slight upgrading of the growth outlook, but expectations that inflation is set to remain weak in the short term.

There were further concerns over the state of emergency with the country due to set up mass vaccination centres.

Strong Chinese industrial profits data helped underpin risk appetite during the Asian session with USD/JPY slightly firmer around 108.25 and EUR/JPY around 130.70.

There was no evidence that political controversy surrounding the government and Prime Minister Johnson was having a significant market impact at this stage, although there some reservations ahead of the Scottish parliamentary election next week given expectations of a strong SNP performance.

On economic grounds, there was also an element of caution ahead of next week’s Bank of England policy meeting and release of the latest Monetary Policy Report.

GBP/USD pushed above the 1.3900 level early Europe on Monday, but was unable to sustain the advance as the dollar resisted further losses.

Equity markets were able to make some headway after the Wall Street open which provided an element of Sterling support and GBP/USD settled around 1.3900.

Economic Calendar