Sterling recovers against Euro to 1.1560
The Pound clawed back some hard fought ground after the open yesterday after defending key support levels against the Dollar and Euro. Sterling recovered from lows of 1.3670 to above 1.3750 while the Euro retreated to near 1.1560. Sterling sentiment was also buoyed by hopes that the re-opening of the economy would help underpin the recovery and support.
Boris Johnson stated that the Northern Ireland protocol was still suffering Sterling remained fragile as a robust UK recovery had already been priced in. Bank of England member Tenreyro made no mention of monetary policy and the Pound retreated from highs after failing to hold above 1.3750 to the Dollar.
There was still some positivity from the fact that all over 50s and vulnerable groups have now been offered a vaccination. UK GDP increased 0.4% for February, slightly below consensus forecasts, although there was a stronger than expected recovery for industrial production. There was only limited recovery in trade volumes for the month. The data failed to stimulate the Pound as it opened near 1.3750 to the Dollar and 1.1554 to the Euro this morning.
The market showed an element of caution ahead of today’s US CPI release given the potential impact on US Treasuries, Federal Reserve (Fed) policy expectations and currency markets. Consensus forecasts are for a 0.5% increase in prices for the month with a jump in the year-on-year rate to 2.5% from 1.7%. Core prices are expected to increase 0.2% to give an annual increase of 1.5% from 1.3% previously.
Stronger than expected readings would trigger expectations that the Fed would be forced into an earlier than expected tapering of bond purchases.
Boston Fed President Rosengren stated on Monday that an interest rate hike is still at least two years away and a weak release would undermine the dollar.
The dollar posted net gains this morning as yields increased with commodity currencies also losing ground.
The Euro held firm heading into the US open, although still in a narrow range, the single currency was unable to break an upper limit around the 1.1920 against the Dollar.
German Chancellor Angela Merkel has also stated that infection rates are still extremely high and that the third wave may be the toughest yet. Additional reports that the lockdown restrictions were due to be extended for a further three weeks with Merkel warning that measures would also need to be tightened.
As of writing, the Euro currently trades just over the 1.19 against its US counterpart.
Data to watch
13:30 – USD – CPI
13:30 – USD – Core CPI
18:01 – USD – 30-y Bond Auction