12/03 – Dollar strengthens on bond moves once again

GBP: Struggling for once

EUR: Back under pressure

USD: Watching inflation numbers once again

Sterling

The UK economy surpassed estimates of a 4.9% decline in GDP in January, only contracting by 2.9% as we dealt with another full lockdown. Highlights within the numbers suggested that the test and trace and vaccination programs alone added 0.9% to GDP and that trade exports to the EU fell by 40% on the month.

This is not a normal data release.

Sterling has not taken too much of a cue from the numbers and for the first time this week seems to be struggling to mount a push higher against both the recalcitrant USD or the wallflower EUR.

We’ll revaluate sterling’s short term moves next week but for today, we expect it to trade with wider risk assets which, at the time of writing, look increasingly down in the mouth.

Euro

Yesterday’s ECB meeting was notable in the absence of actionable insight from the central bank. The most important announcement was that European Central Bank plans on raising the pace of its stimulus purchases in the coming months but has not decided to increase the total number that it wants to purchase.

As I said, not exactly a firework display of economic policymaking and the euro failed to capture the imagination through the rest of the session. Given the moves in US bonds overnight, we may be heading into another period of pressure on the single currency, especially if European policymakers continue to talk about not wanting to see local bond yields increase too.

US dollar

The calm in US bond markets lasted a day, with the yield on US debt rising again yesterday, boosting the USD. There seems to be no concrete reason for such a move to begin save for a large sell-order in bonds going through overnight and investors having to reposition their books accordingly.

With Producer Price Inflation at 13.30 GMT and a particular focus coming down on semiconductors produced in Asia, thoughts are that inflation pressures may be seen as coming down the track alongside the stimulatory hit that the Biden Administration’s stimulus plan is likely to have.

This is a tricky time for the USD with cases for it to be 2% higher and 2% lower than where it is now, today may be the day that it makes that decision.

Elsewhere

Losses for the Japanese yen continue with the currency really not benefiting from a world that is happy to see bonds yields and stock markets higher at the same time i.e. in a recovery.

We expect further losses into and through Q2 for the Japanese currency.

Market rates

Today’s interbank rates at 08:23 against sterling. Movement vs yesterday.

Euro€1.167 ↑
US dollar$1.394 ↑
Australian dollar$1.798 ↑
South African randR20.86 ↑
Japanese yen¥152.2 ↑

Have a great day and a better weekend.

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Jeremy Thomson-Cook

Jeremy Thomson-Cook

Jeremy has over 13 years experience working in the FX industry. As a specialist in political risk mitigation and currency hedging, he regularly advises clients on the day-to-day moves of the markets and the implications of fiscal and monetary policy on international businesses.