Sterling retreated further yesterday after the much weaker than expected inflation. In response, the Pound fell to 6-week lows against the dollar, below the 1.3700 mark.
The Pound did secure a boost later in the day from the stronger than expected business confidence data but struggled to sustain the gains, especially with concerns over vaccine disagreements with the EU Commission, who have proposed tighter controls on vaccine exports.
All eyes will be on the EU leader's decision today and Sterling will be vulnerable if plans to block vaccine exports to the UK are backed.
The pound opens this morning below 1.1600 against the Euro and still remains below 1.3700 versus the Dollar.
The US PMI manufacturing index edged higher to 59.0 for March from 58.6 previously, although slightly below consensus forecasts while the services-sector index advanced marginally to 60.0 from 59.8 in February. Overall confidence in the US recovery remained strong.
US bond yields moved higher which provided significant US dollar support, especially with equities making significant headway.
Atlanta Federal Reserve (Fed) President Bostic stated that he thought 2023 would be the time to start seeing higher interest rates. San Francisco Fed President Daly maintained a dovish stance and stated that the Fed will not be pre-emptively taking away the punch bowl and would not raise rates until there was a sustained achievement of the 2% inflation target. Fed Chair Powell reiterated that there would be near-term upward pressure on prices, but he expects it will be transitory and temporary. In their second day of testimony, Powell and Treasury Secretary Yellen put greater emphasis on the prospects of a strong economic recovery that underpinned the dollar.
The Euro staged a modest recovery from four-month lows against the Dollar and was last seen hovering around the 1.1810 region.
Any meaningful recovery still seems elusive amid concerns about the economic impact of the third wave of COVID-19 infections in Europe with investors worried that new restrictions would further derail the already fragile Eurozone economic recovery. This was reinforced by a rather muted market reaction to Wednesday's better than expected Eurozone Manufacturing and Services data.
On the other hand, the impressive pace of coronavirus vaccinations in the US and the passing of their stimulus package continues to fuel expectations for a quicker than expected economic recovery across the pond.
Data to watch
09:30 - EUR - ECB President Lagarde Speaks
09:30 - GBP - Boe Gov Bailey Speaks
12:00 - EUR - EU Economic Summit
12:30 - USD - Final GDP
Posted in Daily Market News on Mar 25 2021