Yesterday morning the Pound corrected to below the 1.4000 mark against the US Dollar but saw buying support on dips and was marginally higher by the time the US market opened. Underlying Sterling sentiment remained firm with expectations of further capital inflows into the UK. Boris Johnson announced all coronavirus lockdown restrictions in England would be lifted before the end of June. Sterling rose on the news to highs near 1.4080 against the Dollar and 1.1580 against the Euro.
The Bank of England’s external MPC member Gertjan Vlieghe (51) stated that interest rate levels seen before the financial crisis may not return in his lifetime, but Sterling held firm. The Pound opens this morning just above 1.4080 to the Dollar 1.1560 against the Euro. UK unemployment rose to 5.1% from 5.0% as the jobless claimant count rate declined and weekly hours worked was slow to recover. Despite the data Sterling still hovered near 1.4070 against the Dollar amid pressure for a correction after posting strong gains this month.
US yields held firm in early Europe on Monday, but gradually retreated later in the day which limited support for the US currency.
Markets will be monitoring Federal Reserve (Fed) Chair Powell’s testimony closely today with a focus on monetary and fiscal policy. In particular, there will be a focus on any shift in the rhetoric surrounding the potential for early tapering. Trends in yields will remain a key element for dollar direction.
In comments this morning, Chinese state media stated that the economic recovery would pave the way for monetary policy normalisation. Higher interest rates would tend to support the Chinese yuan and curb potential dollar demand, although equity markets could also be undermined.
The German IFO business confidence index strengthened to a 5-month high of 92.4 for February from a revised 90.3 the previous month and above consensus forecasts of 90.5. The current assessment strengthened to 90.6 from 89.2 while there was a stronger increase in the expectations component to 94.2 from 91.5 previously. The data showed the economy could be looking towards an upswing, especially in the industrial sector, with production plans being revised significantly higher which underpinned confidence surrounding the German economy. There were also reports that the Italian ban on regional movement would be extended until March 27th, maintaining some reservations over Euro-zone developments.
Speaking yesterday, ECB President Christine Lagarde stated that the central bank was closely monitoring the evolution of longer-term yields and that they remained committed to preserving favourable financing conditions over the pandemic period. Council member Villeroy also pointed out that there were no risk of economic overheating. The comments triggered some speculation that the bank would look to exert some kind of yield curve control, although there was little impact on the Euro.
As of writing, the Euro currently trades around the 1.2165 mark against its US counterpart.
Data to watch
10:00 - USD - Fed Chair Powell Testifies
10:00 - USD - CB Consumer Confidence
Posted in Daily Market News on Feb 23 2021