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The US dollar melted yesterday as risk-on mood resurfaced after the conclusion of “constructive” talks between Ukraine and Russia in Istanbul.
The talks, aimed at de-escalating the war, ended with Moscow stating that it will drastically decrease military activity near Kyiv and Chernihiv. “Ukraine’s sovereignty and territorial integrity must be guaranteed,” said Ukrainian President Volodymyr Zelensky in a video message on Tuesday.
NATO allies are now debating whether Russia’s commitment to reduce military operations in Ukraine represents a watershed moment in the war or just a tactical move.
Meanwhile, the spectres of stagflation in Europe are reappearing, with inflation in Spain much higher (9.8% year-on-year) in March than projected (8%) ahead of Germany’s inflation data due out today.
The euro (EUR) gained ground versus the dollar, breaking over the $1.11 barrier yesterday and hitting $1.115 this morning, helped by a rebound in risk sentiment amid progress in ceasefire talks between Russia and Ukraine, and rising speculations of an European Central Bank (ECB) rate rise to tackle rising inflation.
The British pound (GBP) welcomed the ceasefire talks between Russia and Ukraine, as did the Japanese yen (JPY), which rebounded in the past two days after dropping for weeks.
The US yield curve is in the spotlight, after yesterday’s spread between the 10-year and 2-year Treasury yield hit parity, dangerously close to the reversal point.
Today’s market attention will be on German inflation statistics, with the consensus expecting a 6.3% rise on the year, and Euro Area confidence indicators. The ADP private employment report will be the focus in the US.
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Chart of the day: EUR and JPY rallied after peace talks
EUR and JPY gained ground against the USD following peace talks – Credit: Capital.com / Source: TradingviewForex markets today – 30 March 2022
- In London’s morning trading, the US Dollar Index (DXY) tumbled to 97.90, down by 0.6% on the day. The euro (EUR) rose to $1.115, up 0.6% today, after gaining 1% yesterday. The British pound (GBP) rose 0.4% to $1.314.
- Low-yielding, safe-haven currencies gained ground versus the dollar. The Japanese yen (JPY) is the best performing G-10 currency today, strengthening by 1% versus the USD. The Swiss franc (CHF) rose 0.7%.
- Oil-linked currencies remain well-supported thanks to the strong pick up in risk sentiment. The Canadian dollar’s (CAD) edged 0.2% higher. The Norwegian krone (NOK) appreciated 0.4% versus the USD.
- The commodity-sensitive Australian dollar (AUD) was slightly up (0.1%), while the high-beta New Zealand dollar (NZD) gained 0.6%.
- Central Eastern European (CEE) currencies strongly recovered yesterday. The Polish zloty (PLN), the Czech koruna (CZK) and the Hungarian forint (HUF) are stable against the EUR today.
- The Russian rouble (RUB) rallied substantially yesterday, gaining as much as 7% versus the USD.
- Emerging market (EM) currencies were broadly in the green. The South African rand (ZAR) and the Mexican peso (MXN) gained 0.6% and 0.2%, respectively. In Asia, the Korean won (KRW) slipped by 0.2% while the Chinese yuan (CNH) strengthened 0.3%. The Turkish lira (TRY) lost 0.6%.
Major currencies: Top risers and fallers today – 30 March 2022
Major currencies: Today’s top risers and fallers, 30 March 2022, 10:00 UTC – Credit: Capital.comForex market heatmap – 30 March 2022
Forex market heatmap as of 30 March 2022, 10:00 UTC – Credit: Capital.comUSD, EUR, GBP snapshot – 30 March 2022
Expectations of Fed rate hikes saw a slight step back yesterday after the US yield curve (10-2 year spread) came dangerously close to inversion. The market is now pricing in a 64% chance of a 50 basis point (bp) hike at the Federal Reserve meeting in May, compared with a 70% probability earlier in the week, according to the latest CME Group’s FedWatch Tool.
The ADP employment data for March will be released today in the US, with the market anticipating a 450 thousand gain in the number of employees, from 475 thousand in February. Values that are in line with or above the projected number indicate a positive trend in the US job market, and might bolster expectations for faster Federal Reserve rate hikes.
The German inflation figure for March is due today and it could represent a market-moving event for the euro. The market expects German inflation to rise 6.3% year-on-year in March, up from 5.1% in February. If inflation in Germany were to surprise on the upside, as happened this morning in Spain, the market could significantly start to price in a faster normalisation of the ECB’s monetary policy, supporting the euro rate-differential angle against the dollar.
In the UK, expectations of Bank of England rate hikes have lingered materially after comments by Governor Andrew Bailey, who pointed to growing uncertainties for the economic outlook. The 2-year yield on gilts contracted significantly to 1.33% from 1.5% at the beginning of the week. The 10-year yields on gilts also fell to 1.6% from 1.75% over three days.
EUR/USD technical levels
- 52-week high: 1.2266
- 52-week low: 1.083
- 50-day moving average (one-day chart): 1.1186
- 200-day moving average (one-day chart): 1.1497
- 14-day Relative Strength Index (RSI) (one-day chart): 45
GBP/USD technical levels
- 52-week high: 1.4248
- 52-week low: 1.2998
- 50-day moving average (one-day chart): 1.3372
- 200-day moving average (one-day chart): 1.3570
- 14-day Relative Strength Index (RSI) (one-day chart): 43
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