The dollar languished on Wednesday, hovering just above a seven-week low with subdued U.S. bond yields reducing the currency’s yield appeal.
The safe-haven greenback got some respite from a pullback in world stocks from record highs as flare ups in coronavirus infections from India to Canada soured the outlook for a quick global recovery.
The safety bid also bolstered the yen, which climbed to a fresh seven-week peak of 107.88 per dollar on Wednesday.
The dollar index, which tracks the U.S. currency against six major peers, was at 91.196 early in the Asian trading day after slumping as low as 90.856 on Tuesday for the first time since March 3. It has declined 2.2% so far this month.
The index “has broken down through a key short-term support level at 91.30 and can see further downside to the low 90s,” with the euro rising to around $1.22, Westpac strategists wrote in a client note.
“We were looking for the (index) to top in Q3, when second derivative U.S. rebound measures crest and Europe gets her vax act together, but the early indications are that vaccinations across Europe are picking up pace already,” Westpac said.
The single currency traded at $1.2039, after touching a seven-week high of $1.2079 overnight.
The European Central Bank decides policy on Thursday, with the Federal Reserve following next week.
The benchmark 10-year Treasury yield was around 1.56%, not far from its lowest since mid-March, as it continued to consolidate following its retreat from the 14-month high at 1.7760% reached at the end of last month.
Declines in U.S. yields and the dollar in April have come as evidence mounted that the Fed would be slower in tightening monetary policy than it had appeared to the market, analysts said.
Some encouragement for the euro came from the announcement that the European Union has secured an additional 100 million doses of the COVID-19 vaccine produced by BioNTech and Pfizer.
Elsewhere though, pandemic developments triggered investor caution.
India reported 1,761 deaths from COVID-19, its highest daily toll, while Canada and the United States extended a land-border closure for non-essential travelers.
In cryptocurrencies, bitcoin traded around $56,000, consolidating following its dip to as low as $51,541.16 on Sunday. It set a record high at $64,895.22 on April 14.
· “The U.S. dollar had edged lower this morning, supporting prices, with gold’s upward momentum from overnight continuing in Asia,” OANDA senior market analyst Jeffrey Halley said.
“Providing that U.S. 10-year yields remain softer, gold appears to be gathering strength for a test of the 100-day moving average at $1,802 an ounce in the days ahead.”
· No better hedge against risk than Fed chair Powell, says Jefferies’ Zervos
CNBC’s Kelly Evans discusses the inflation situation and whether the surge is here to stay with David Zervos, chief market strategist at Jefferies.
· USD/JPY struggles near multi-week lows, around 108.00 mark
The USD/JPY pair remained depressed through the first half of the trading action on Wednesday and was last seen hovering around the 108.00 mark, just a few pips above multi-week lows.
Investors now seem convinced with the view that any spike in inflation is likely to be temporary and that the Fed will keep interest rates low for a longer period. That said, a modest uptick in the US Treasury bond yields helped limit the downside for the USD/JPY pair, at least for now.
From a technical perspective, the USD/JPY pair, so far, has managed to defend the 38.2% Fibonacci level of its rally from YTD lows. This makes it prudent to wait for some follow-through selling before positioning for an extension of the recent pullback from the 111.00 neighbourhood.
There isn't any major market moving economic data due for release from the US on Wednesday, leaving the USD/JPY pair at the mercy of the broader market risk sentiment. Apart from this, the US bond yields and the USD price dynamics will also be looked upon for some trading opportunities.
· ECB: Bought net €17 billion of assets last week vs. €20.16 billion previously
The European Central Bank announced on Monday that it bought a net 17.009 billion euros of assets last week as part of its quantitative easing programme, compared to 20.165 billion euros a week earlier, as reported by Reuters.
Market reaction
The EUR/USD pair showed no immediate reaction to these figures and was last seen gaining 0.33% on the day at 1.2022.
· Investors trying to predict the European Central Bank’s stimulus plans are about to run into deeper uncertainty even as the clouds around the pandemic start to lift
Europeans are unlikely to go back to pre-crisis levels of spending, the European Commission said. The European Union plans to overhaul its economy with laws to enact stricter climate goals
U.K. households took on more debt and suffered a bigger hit to incomes during the pandemic than those in France and Germany
Chinese leader Xi Jinping will participate in a climate summit organized by U.S. President Joe Biden, a sign that climate issues are one area the two countries can cooperate on amid frosty ties
Chinese traffic and factory activity is not only back to normal, it’s surpassing pre-virus levels, underpinning the global oil demand recovery
China is making incremental progress in meeting the targets set under the phase-one trade deal with the U.S., but a surge in exports to the world’s largest economy shows the trade imbalance between the two nations is worsening
South Korea and Australia are proving the odd couple of the global economy, managing to mitigate the impact of the Covid crisis due to deep links with China’ and key advantages unique to themselves
The Bank of Canada is poised to pare back its asset purchases amid a stronger-than-expected economic recovery
Bloomberg Economics looks at the impact of rising yields on the fair value of currencies
The Bank of Japan will tweak some of its quarterly forecasts and leave its main stimulus settings unchanged next week as it assesses the impact of its recent policy review, according to a Bloomberg survey
· Euro zone banks to tighten access to credit in Q2: ECB survey
Euro zone banks expect to tighten access to credit further in the second quarter, a European Central Bank lending survey showed on Tuesday, as the bloc’s pandemic-induced recession drags on and now threatens to disrupt the coming holiday season.
Weighted down by over a year of lockdowns, much of Europe’s services sector is surviving on emergency cash and the ECB fears that banks will turn off the money taps, forcing firms out of business and leaving the economy scarred.
“This reflects banks’ uncertainty regarding the severity of the economic impact of the third wave of the pandemic and the progress in the vaccination campaign,” the ECB said a quarterly lending survey.
· German court dismisses legal challenge against the EU’s pandemic recovery fund
The German constitutional court decided on Wednesday to dismiss legal challenges against the EU’s recovery plan, effectively paving the way for the unprecedented stimulus to be rolled out across the region.
· UK inflation rises to 0.7% in March as clothing and fuel prices grow
British consumer price inflation rose to 0.7% in March from 0.4% in February, reflecting higher fuel and clothing prices, official figures showed on Wednesday, slightly below the average forecast of 0.8% in a Reuters poll of economists.
Food prices were lower than a year earlier.
· Biden’s economic plans will help the U.S. compete with China, says former Treasury secretary
President Joe Biden’s plans to bolster the U.S. economy will help the country compete with China’s massive Belt and Road Initiative, former Treasury Secretary Jacob Lew said on Wednesday.
The Belt and Road Initiative is China’s ambitious program to build physical and digital infrastructure that connects hundreds of countries from Asia to the Middle East, Africa and Europe. Many critics consider it Chinese President Xi Jinping’s signature foreign policy to expand his country’s global influence.
· Japan weighs state of emergency for Tokyo, Osaka regions amid virus surge: media
Japan’s government is considering a state of emergency for Tokyo and Osaka as new COVID-19 case numbers surge, broadcaster NHK reported on Wednesday, a move that would enable prefectural authorities to impose curbs to try to stop infections spreading.
· Tokyo Governor Yuriko Koike is preparing to request an emergency period be declared from April 29 to May 9, encompassing Japan’s annual ‘Golden Week’ holiday period, the Mainichi newspaper reported.
· Myanmar military says junta leader to join ASEAN summit -Nikkei Asia
· Biden to pledge halving greenhouse gases by 2030
President Joe Biden will pledge to cut U.S. greenhouse gas emissions at least in half by 2030 as he convenes a virtual climate summit with 40 world leaders, according to three people with knowledge of the White House plans.
· Oil prices drop as India's COVID-19 surge dents demand outlook
Oil prices fell for a second day on Wednesday, weighed down by concerns that surging COVID-19 cases in India will drive down fuel demand in the world's third-biggest oil importer.
Brent crude futures for June declined 29 cents, or 0.4%, to $66.28 a barrel at 0645 GMT, after dropping 48 cents on Tuesday.
U.S. West Texas Intermediate (WTI) crude futures for June fell 34 cents, or 0.5%, to $62.33 a barrel. The May contract expired on Tuesday down 1.5% at $62.44.
"India is a major crude oil consumer. So rising virus cases and thereby restrictions to limit the spread will dampen the demand outlook," said Ravindra Rao, vice president for commodities at Kotak Securities.
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