The pound has softened against most peer currencies over the last day. Cable has posted a six-day low at 1.3772, down on the 18-day high seen yesterday at 1.3920. The biggest moves have been seen against the yen and euro, which have outperformed the main currencies we keep tabs on over the last day. This is something of a reversal of recent themes, with the yen and euro having lately been found in the underperforming lane often, while the pound, along with the dollar and dollar bloc currencies, registers among the currency outperformers on the year so far. Yield differential dynamics appear to be at play today, with U.S. Treasury and Gilt yields dropping back more than JGB and Bund yields at the 10-year and other mid- to longer-dated maturities. The lackluster performance of U.S. equities after the main indices clocked new record highs on Monday appears to be a reason for the softening in yields. Investors are digesting prospects for higher corporate taxes linked to President Biden's $2 bln infrastructure plan, which analysts at GS reckon would trim 9% of earnings per share for companies listed in the S&P 500. Taking a step back, we retain an overall bullish view of the pound, especially against the euro and yen. Sterling on Monday printed a 14-month high versus the euro, which although occurring in holiday-thinned trading reflected the contrasting fortunes of the reopening UK economy with the re-restricted economies across the Channel. The rate of new Covid cases in the UK is now 4% of what it was at the peak seen in early January, despite a more than doubling in testing over that time, while the death rate is less than 3% of what it was at the highs. This stands in marked contrast to the scene in much of continental Europe.
The dollar has posted fresh lows, which put the DXY index at a 15-day low at 92.95. The forex market appears to have been somewhat wrong-footed by a pronounced decline in Treasury yields. Inflation worries have been fading a bit, at least for now, as Fed policymakers continue to stress, they do not see any problem with price pressures for the foreseeable future. The Fed has also assured it will not hike rates pre-emptively, needing to see real evidence that their goals are being met before acting. At the same time, there has been a sputtering phase in U.S. stock markets after the bellwether U.S. indices scaled to record highs on Monday, which has induced a haven bid for Treasuries. The 10-year Treasury yield has pressed below 1.640%, down by around 8 bp from yesterday's high. This backdrop has fostered a reversal of recent themes in the currency market, aside from the correction in the dollar, with the yen and euro, currencies that have lately been found in the underperforming lane often, having rebounded notably over a couple of days. EUR-USD has pegged a 15-day high at 1.1883, setting up the pair for what might be its second down week out of the last seven. USD-JPY has dropped to a nine-day low at 109.58, setting up what could be the pair's second down week out of the last six. The biggest movers out of the main currencies we monitor have been EUR-CAD and CAD-JPY. The Canadian dollar, which has been amongst the strongest currencies in the year so far, being a principal winner in the reflation trade due to its correlation with oil prices, had been looking due for a correction, with the oil price rally has lost traction in recent weeks. This has lifted USD-CAD to eight-day highs above 1.2600, despite the prevailing broader weakness in the greenback.
XE Market Analysis Europe – 07th April 2021
GBP>EUR – 1.1624
GBP>USD – 1.3806
EUR>USD – 1.1878
GBP>CAD – 1.7413
GBP>AUD – 1.8086
GBP>SEK – 11.892
GBP>AED – 5.0709
GBP>HKD – 10.745
GBP>ZAR – 20.077
GBP>CHF – 1.2838
· USD President Biden speech
· USD FOMC Minutes
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- EUR/USD: Bulls take a breather below 200-DMA, FOMC minutes eyed
- Forex Today: Dollar retreats on growth optimism ahead of Biden, FOMC minutes
- CCIV Stock Price Prediction: Churchill Capital attracts bargain-seekers amid buoyant markets
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