FX Report 20 April 2016

The dollar came under renewed selling pressure against commodity-related currencies on Tuesday as commodity and energy prices moved higher again and this wider selling pressure had a significant impact on the US currency against the Euro.  The improvement in risk appetite could still increase Euro selling in the context of its role as the main global funding currency. The latest ECB lending survey continued to show increased loan demand across all categories and there will be optimism that ECB credit easing is having a positive impact. The German ZEW expectations index was stronger than expected at 11.2 for April from 4.3 previously, but the current situation was weaker than exec ted, as was the case for the Euro-zone index, US housing data was weaker than expected with starts falling to an annual rate of 1.09mn for March from a revised 1.19mn previously whole permits fell for the second successive month to 1.18mn which will dampen confidence in the housing sector to some extent. There are unlikely to be further significant comments from Fed officials ahead of next week’s FOMC meeting. The Euro overall pushed to highs near 1.1385 before drifting lower with the dollar gaining some respite as commodity currencies corrected lower. There will be caution ahead of Thursday’s ECB meeting with a debate on whether President Draghi would look to talk the Euro down in his press conference as the currency edged marginally lower in early Europe.
JPY  The dollar pushed higher in the European session on Tuesday with a peak just below 109.50 before being dragged lower by the weaker than expected US housing data. Risk appetite also tended to weaken slightly in early US trading which pushed the US currency lower with a dip towards 109.00. Equity markets stabilised later in the session and US bond yields also recovered from lows which stemmed further US selling.  The latest seasonally-adjusted Japanese trade surplus was slightly lower than expected at JPY0.28trn although it still rose from JPY0.15trn previously. Exports declined fell 6.8% in the year to March from a 4.0% decline previously as shipments to China remained weak which will maintain pressure for a competitive yen. Exports fell 0.7% for the year, the first decline in three years and, although there was an improvement in the monthly Tankan index for April, there were expectations of fresh weakness over the next three months. The yen resisted further selling pressure despite generally firm risk conditions and the dollar dipped back below the 109.00 level with Bank of Japan Governor Kuroda’s comments not having a major impact.
GBP  Sterling continued to draw support from an overall improvement in risk appetite during Tuesday with gains for commodity prices and crude oil also helping to push the currency higher. There was some slight shift in expectations surrounding the EU referendum after latest opinion polls suggested a narrow lead for the stay campaign. In testimony to the House of Lords economics committee, Bank of England Governor Carney reiterated that there were significant risks to the economy from the EU referendum vote with evidence that there had already been some negative impact. He was also uneasy over the implied risk to financial stability, especially given the substantial current account deficit.  Although opposed to negative interest rates, Carney also stated that a cut in interest rates would be feasible if necessary to combat deterioration in confidence. Sterling pushed to highs above 1.4400 against the dollar before edging lower on the interest rate comments as the Euro found some support below 0.7900 with the UK currency drifting lower on Wednesday.
Regards All.

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