UK Inflation data printed slightly lower than expected and consequently limited support for the Pound yesterday morning. The headline inflation rate is expected to rise in the short term but to remain under control and thus the Bank of England does not expect to tighten policy. Weaker risk conditions contributed to Sterling ebbing lower to 1.3900 against the Dollar before the US market opened. Once Wall Street was online risk appetite strengthened and selling pressure on Sterling reduced, especially as commodity currencies posted gains.
There was also some encouraging evidence that vaccines were having an important impact in curbing serious illness, although there were also warnings that infections would increase over the summer. Markets will continue to monitor anecdotal evidence of economic recovery with key business confidence data due on Friday.
There was little change on Thursday with Sterling holding around 1.3935 against the Dollar and 1.1580 against the Euro.
Equity markets recovered ground following the US open which limited the potential for a further Dollar recovery. Commodity currencies posted significant gains and the Euro recovered to the 1.2035 area at the European close as underlying US Dollar sentiment remained fragile.
Overall volatility remained subdued, especially ahead of policy decisions by the ECB and Federal Reserve over the next week. Markets expect a low key ECB meeting later today, but rhetoric from President Lagarde will be watched closely.
Global coronavirus concerns continued to have some impact in stifling risk appetite with India recording over 300,000 new daily infections with the Euro settling around the 1.2035 this morning.
The French government announced that it expects domestic travel restrictions will be lifted on May 3rd.
There was an element of optimism that the Euro-zone performance would improve strongly during the second quarter of 2021 as vaccination rates increase. There were, however, still concerns over the near-term outlook, especially with infections still running at very high levels. The Euro drifted lower heading into the US open as risk conditions remained fragile. The Dollar secured an element of defensive support with the Euro dipping to the 1.2000 area. The ECB
As of writing, the Euro currently trades around the 1.2040 mark against its US counterpart.
Data to watch
12:45 - EUR - Monetary Policy Statement
12:45 - EUR - Main Refinancing Rate
13:30 - EUR - ECB Press Conference
13:30 - USD - Unemployment Claims
Posted in Daily Market News on Apr 22 2021