USD bouncing back, GBP trickles lower
GBP/EUR: A tumble in the last few days, as renewed selling pressure began for GBP. This morning’s weaker than expected inflation data hasn’t helped GBP which has been sitting at recent highs vs EUR due to confidence around the UK’s recovery path and vaccination roll-out.
GBP/EUR is also under pressure as the EUR gained ground after French and German PMI data was better than expected. Currently at 1.1590, the pair hasn’t broken any key levels, but more negative GBP data could extend losses for the pair.
These Eurozone Manufacturing PMI stats may seem benign, but underlying improvements in manufacturing (from 57.9 in Feb to 62.4 in March) and business confidence will serve to counter weakness in the service sector in Europe. Economists know that the service sector recovery may be difficult, but with other positive data, the Eurozone economic recovery might be better than expected – even in the face of Poland, France and Germany in new lockdowns. As Chris Williamson at HIS Markit says:
“The Eurozone service sector remains the economy’s weak spot, but even here the rate of decline moderated in March as companies benefited from the manufacturing sector’s upturn, customers adapted to life during a pandemic and prospects remained relatively upbeat.”
Despite all of this positivity, a slow vaccination program is sure to pressure the EURO.
USD: Strengthened since later last week as impressive vaccination numbers come from the US, where parts of the economy are gradually opening up. The well-documented rise in US yields has held up the USD, alongside the approval of the US fiscal stimulus package pointing to continued support for households and businesses. EUR/USD was pushed lower – now at 1.1810 – the lowest level of 2021.
The market knows that any USD strength will be capped by the US Federal Reserve which has committed to maintaining a ‘mega-accommodative’ stance in the medium term, until inflation and employment have made ‘substantial further progress’. The USD is a lively place this week, with yet Sino-US relations in the spotlight again, more speeches from Fed Chair Powell today, GDP data on Thursday and Income data on Friday.
AUD: Hurt by the USD bounce-back (a 1.5% fall in AUD-USD overnigh), and the market is targeting the critical 0.7500 level where the currency will be vulnerable. Hitting the year to date lows around 0.7565 wont help – in fact the market ignored decent AUD data, instead concentrating on buying USD! The Central Bank has continued a very dovish stance in recent days, but counter to this is the story of global economic recovery, which will bring buyers back to AUD and NZD as risk appetite picks up again. Traders are treading this balance very carefully at the moment. As always with CAD, AUD and NZD – timing is everything!