EUR / USD
The Euro was unable to sustain a brief move to 1.1450 on Thursday and dipped lower in very choppy trading conditions. There were generally dovish comments in the ECB minutes from March’s meeting with a determination to take a decisive stance to expand monetary policy further and respond to concerns over a weaker global environment. There were particular concerns surrounding the risk of second-round inflation risks and the possibility that medium-term expectations could become de-anchored. This point was also emphasised by ECB speakers while President Draghi insisted there would be no surrender to low inflation. There were also calls for improved support from fiscal policy and Draghi avoided talking down the Euro. There was little in the way of economic data releases with jobless claims falling to 267,000 in the latest week from 276,000 previously which will help maintain near-term confidence in the overall labour market. San Francisco Fed President Williams remained generally optimistic over the outlook and expected that at least two rate increases could be supported during 2016 while fellow member George continued to call for small rate increases. Fed Chair Yellen, in conversation with three previous heads, took a slightly more optimistic tone with comments that progress was being made on inflation and that the economy was close to full employment which provided some dollar support. The Euro dipped to lows below 1.1350 before finding some support and consolidating around 1.1370 as cross-related moves remained important.
The dollar remained under strong downward pressure against the yen on Thursday with fresh 17-month lows below the 108.00 level. Underlying risk appetite remained fragile as oil prices and equity markets were subjected to renewed selling pressure. There was also a sharp decline in US bond yields with the 10-year rate below 1.70% and overall dollar yield support was weaker which dragged the US currency lower with no evidence of intervention at this point. There were major doubts whether the Bank of Japan would intervene, but markets were still on high alert. Finance Minister Aso and chief cabinet Secretary Suga both commented that recent forex moves had been one-sided and that the market was being closely monitored with steps taken as needed. The comments helped curb further immediate yen buying as US yields also edged higher with the dollar correcting back towards 108.80. There was a higher than expected current account surplus, emphasising potential yen gains if there is a sustained weakening in capital outflows from Japan.
Sterling remained under pressure on Thursday, although media attention was slightly lower given that most attention focussed on the yen surge. Sterling dipped to lows beyond 0.8100 against the Euro and the weakest level since June 2014. After failing to hold above 1.4100 against the dollar, there was also a decline towards 1.4050. There was a very weak reading for fourth-quarter productivity which will maintain concerns surrounding UK fundamentals and put upward pressure on costs. There will also be speculation that costs will rise more quickly than expected which could cause major difficulties for the Bank of England. There was also a strong reading for the latest Halifax house-price index with the annual increase above 10%, also suggesting that asset-price inflation could be accelerating. Underlying concerns surrounding the EU referendum continued to have an important negative Sterling impact as implied three-month volatilities continued to push higher. Latest production and trade data will be monitored closely on Friday.
The Euro drifted weaker against the franc on Thursday with lows below 1.0850 before a partial recovery and the dollar was also unable to make significant headway with no move to retake the 0.9600 area and a test of support below 0.9550. A further net deterioration in global risk conditions helped underpin the franc, especially with the yen and gold prices both moving higher during the day. Markets will be on alert for National Bank intervention if the franc continues to gain ground as the SNB remains very sensitive to overall currency moves.