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Sterling drifts towards 1.1500 against the Euro

Sterling drifts towards 1.1500 against the Euro

GBP

UK GDP figures fell short of the forecasts and trade volumes remained below 2020 levels which maintained unease over underlying economic developments. This fed reservations over the longer-term recovery outlook.

The Bank of England’s chief economist Andy Haldane will leave the bank in June. Mr Haldane has been optimistic about the UK recovery outlook and been relatively more in favour of raising interest rates. His departure could mean monetary policy votes lean towards a more timid approach with increased resistance to higher interest rates. Because of this the Pound Sterling dipped lower on the announcement and well as taking a hit from a fresh outbreak of cases for the South African covid variant and doubts over the Johnson & Johnson vaccine. By mid afternoon risk appetite increased slightly which curbed potential selling pressure. The Pound settled near 1.3750 to the Dollar with the Euro pushing below 1.1495 before retreating. 

Sterling opens near 1.3780 to the Dollar and 1.1514 to the Euro as risk appetite holds firm.

 

USD

The US NFIB small-business confidence index strengthened to 98.2 for March from 95.8 the previous month, maintaining confidence in the outlook.

US consumer prices increased 0.6% for March, above consensus forecasts of 0.5% with the year-on-year inflation rate increasing to 2.6% from 1.7% previously and the strongest reading since September 2018 as gasoline prices increased sharply. Core prices increased 0.3% on the month, above consensus forecasts of 0.2% with the annual rate increasing to 1.6% from 1.3% and above market expectations of 1.5%.

Although markets have been worrying over inflation risks, consumer prices data was stronger than expected, consequently, US yields moved lower following the data. The 5-year yield dipped to below 0.85% from 13-month highs around 0.95% early last week. Markets also appear to have been positioned for a strong figure and dollar gains. In this environment, the dollar failed to gain support from the data and quickly lost ground against many G10 currencies.

 

EUR

The German ZEW economic confidence index retreated to 70.0 for April from 76.6 the previous month and below consensus forecasts of 79.0. There was, however, a stronger than expected net improvement in the current conditions index to -48.8 from -61.0 previously. The Euro-zone expectations index improved slightly to 66.3 from 74.0 the previous month. The Euro drifted lower after the data, although overall moves were limited amid caution ahead of the US CPI data.

ECB council member Villeroy stated that the cause of higher inflation is only temporary and that it was too early to remove policy stimulus. Additionally, delays to the Johnson & Johnson vaccine could also prove a significant setback given that the EU has placed huge orders for the vaccine.

As of writing, the Euro currently trades around the 1.1960 mark against its US counterpart. 

 

Data to watch

15:00 – EUR – ECB President Lagarde Speaks 

15:30 – USD – Crude Oil Inventories 

17:00 – USD – Fed Chair Powell Speaks 

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