Yen gains on weak China data; European data eyed

The Japanese yen rallied to a three-week high on Tuesday as disappointing data on Chinese manufacturing undermined risk appetite, with investors waiting for European data to see if that will push currencies out of recent trading ranges.

Forecasts are for a 0.3 percent rise in euro zone gross domestic product from the quarter before. That would be a bigger increase than the previous quarter and may be taken as a sign of stabilization.

Even such marginal growth could squeeze speculators who have been amassing large short positions in the euro, worth a net $14.8 billion in the week to April 23.

“Any signs of consolidation in the German CPI data and the eurozone GDP figures may lead to some unwinding of the extended short positions in the euro, particularly on the crosses,” said Valentin Marinov, head of G10 FX research at Credit Agricole in London.

But early trends in the currency markets were cautious after China’s official purchasing management index dipped to 50.1 April. Forecasts had been for no change from March’s 50.5 or an increase.

Some of the favored currencies in a low-volatility environment such as the Australian dollar and the Aussie/Swiss franc fell 0.2 to 0.3 percent.

Trading was thin with Japan on holiday, and set to get thinner on Wednesday when China and much of Europe will be off.

Against a basket of currencies, the dollar was flat at 97.839. On a monthly basis, it was up 0.6 percent and on track for a third consecutive month of gains.

The Federal Reserve’s two-day policy meeting, which ends on Wednesday, remains a hurdle for the dollar. No change in policy is expected, but the market wants to hear how Chairman Jerome Powell resolves the divergence between solid economic growth and slowing inflation.

Dollar rally stalls underlining slowdown fears

A rally in the dollar faltered on Monday with strong U.S. data doing little to lift the currency or convince investors that a slowdown in activity is over.

The greenback traded in a narrow range as Japan kicked off a week of holidays, typically a period of thin liquidity that can prompt spikes in volatility.

A Federal Reserve policy meeting, Brexit negotiations and a raft of global data including on U.S. core inflation and payrolls could each be the trigger for big currency swings this week.

All eyes are on the Fed to see what its policymakers made of a first-quarter gross domestic product report that showed strong growth of 3.2 percent, but largely for one-off reasons including a surge in inventories.

“This is not the week during which we would be looking to put on large positions in FX in an attempt to profit from the market implications of one or more economic events,” said Stephen Gallo, European head of FX strategy at BMO Capital Markets in London.

“Nevertheless, our overwhelming bias with high conviction remains buying the USD on dips vs most of the rest of the G10 space.”

The aggregate dollar long position climbed to $33.6 billion on Monday, its highest level since December 2015, according to Scotiabank’s weekly CFTC sentiment report. The euro remains the largest held net short.

Against a basket of currencies, the dollar was a fraction softer at 97.970, having eased from a near two-year peak of 98.330.

The dollar fell back on Friday despite the upbeat GDP report because core inflation slowed sharply, leading speculators to narrow the odds on a rate cut this year.

Most other major central banks have also turned dovish in recent months, keeping their currencies subdued.

The Canadian dollar and Swedish crown, for instance, both took hits last week when their central banks put a halt on future rate hikes.

The European Central Bank is under pressure to keep its stimulus in place, if not to do a new round, while markets are pricing in rate cuts for Australia and New Zealand following weak inflation readings.

Some fear the lack of liquidity could lead to a re-run of the dollar’s flash crash from January when the yen made massive gains in a matter of minutes as bears were forced to cover short positions.

The euro was a shade firmer at $1.1157, but still not far from a near two-year trough of $1.1110. The euro has been broadly pushing lower since early January.

A swathe of manufacturing surveys from Europe and China are due later this week, along with a first reading on EU GDP. The U.S. payrolls report on Friday is forecast to show a solid increase of 180,000 in April, with unemployment at 3.8 percent.

Euro hovers near 22-month lows as market awaits US GDP data

The euro hovered near 22-month lows on Friday as traders waited to see whether U.S. GDP data due out later will reinforce signs of economic strength and send the dollar surging even higher.

After a small rise in volatility this week – albeit from multi-year lows – currency markets were quiet at the European open, with most major pairs stuck in tight trading ranges.

The dollar index versus a basket of six major currencies inched lower to 98.101 after advancing to 98.322 on Thursday, its highest since May 2017.

The euro rose 0.1 percent to $1.1140.

New orders for U.S.-made capital goods increased by the most in eight months in March. That followed other recent U.S. data that have eased fears of a sharp slowdown in the world’s biggest economy.

Data at 1230 GMT is expected to show that U.S. gross domestic product (GDP) increased 2.0 percent year-on-year in the first quarter.

“This week’s break in EUR/USD below $1.1200 has largely been a dollar story. Over the next few days, however, focus could return to Europe,” ING analysts said in a note, citing the election in Spain on Sunday, an S&P review of Italian sovereign debt ratings, and possible French economic reforms.

The Bank of Japan on Thursday put a time frame on its forward guidance for the first time by telling investors it will keep interest rates at super-low levels for at least one more year, in a move aimed at dispelling any doubt over its commitment to ultra-loose policies.

The yen was little changed on Friday, at 111.63 yen per dollar, after shedding 0.5 percent overnight.

“The Chinese PMI and the U.S. non-farm jobs report are due over the next week and both are expected to be quite good. There is also the next round of U.S.-China trade talks, which could further lift risk sentiment,” said Mitsuo Imaizumi, chief FX strategist at Daiwa Securities.

“The market could thus see a significant increase in ‘risk on’ during the Japanese holidays, pushing dollar/yen towards 113.00 yen.”

The Australian dollar rose 0.2 percent to $0.7027. The Aussie has lost nearly 2 percent this week, hitting a near four-month trough as soft domestic inflation data boosted the prospect of a rate cut by the Reserve Bank of Australia.

The New Zealand dollar rose 0.3 percent $0.6647.

Sterling, which has been hurt this week by dollar strength and concerns Brexit talks between the ruling Conservative and opposition Labour parties had run into the sand, clawed itself back above $1.29.

Swedish crown falls to 17-year low after central bank delays rate hike

The Swedish crown plummeted to a 17-year low on Thursday after the country’s central bank delayed its next interest rate hike.

The Riksbank began normalising policy in December due to a strong economy but it has since joined its counterparts in Europe and Canada in adopting a cautious outlook.

Still, its message of restraint and concern about weak inflationary pressure caught some investors off guard.

The crown sank 1.4 percent versus the dollar to 9.55, its lowest since August 2002 and was headed for its biggest daily loss versus the euro since November.

“This extraordinary monetary policy stance continues to whack the crown and the [Riksbank] change in tone seems warranted,” said Societe Generale analyst Kit Juckes.

The central bank said at its previous meeting that it planned to tighten policy in the second half of this year but Nordea Markets Analyst Torbjorn Isaksson said the bank was unlikely to hike until 2020 or possibly later.

Inflation in Sweden has lost steam despite getting a boost from a currency that has weakened steadily over the last six years.

The euro languished near a 22-month low, weighed down by ailing growth in Germany and the spectre of political uncertainty in Spain.

A surprise drop in German business morale has highlighted the divergence between economic data in the United States and the euro zone. The euro has recently traded in a fairly narrow range but expectations of price swings in next month’s elections for the European Parliament have risen according to implied volatility gauges.

The European Central Bank in March pushed out the timing of its first post-crisis rate hike until 2020 and that is impacting the euro. It suffered its worst day in over six weeks on Wednesday, falling 0.6 percent to a 22-month low of $1.1141. It traded flat on Thursday at $1.1154.

“Political uncertainties combined with economic concerns are a rather bad cocktail for the euro,” Antje Praefcke, an analyst at Commerzbank, wrote in a note to clients.

A polarised election in Spain on Sunday could further dampen the euro’s prospects.

The greenback rallied to a 23-month high of 98.189 against a basket of key rivals largely propelled by the euro’s weakness. The index last traded 0.15 percent lower at 98.027.

Investors will watch the release on Friday of U.S. gross domestic product data for the first three months of 2019, for signs of whether the United States remains stronger than other leading economies.

Dollar gains as foreign exchange volatility drops

The dollar held near three-week highs on Tuesday as a drop in market volatility ramped up demand for riskier assets.

With 10-year U.S. Treasury yields up by more than 20 basis points over the past four weeks to a one-month high, demand for U.S.-denominated assets has grown.

Broader market moves were quiet as financial markets reopened after the Easter holiday.

The dollar index against a basket of six key rivals rose to 97.39, edging toward the 2019 high of 97.71 struck in early March.

“We are in a very range-bound market with the broader picture being more positive for the dollar relative to the euro after the weak eurozone PMI manufacturing data last week,” said Ulrich Leuchtmann, head of FX strategy at Commerzbank.

Data released overnight showed U.S. existing-home sales fell more than expected in March. Figures for new-home sales will be released later in the day.

Those may provide some pointers to the state of the U.S. economy. A clearer picture should emerge from the gross domestic product report set for release on Friday.

Support for the dollar came amid a general drop in market volatility. Expected moves in the euro/dollar exchange rate over a one-month period held near a five-year low of 4.50 vol.

The dollar’s moves against the euro and sterling were small, with the single currency lower at $1.1243 and the pound up at $1.2986.

Dollar firm in thin post-holiday trade, loonie up as oil prices jump

The dollar edged up against key peers such as the euro and the yen on Monday, boosted by the relative strength of the U.S. economy, while losing ground against the Canadian dollar following a rise in crude oil prices.

Financial markets in Australia, Hong Kong and many major countries in Europe are closed on Monday for the Easter holiday. Currency trading continues globally but volume is expected to be light.

The dollar was lackluster against the loonie as crude oil prices rose more than 2 percent following a Washington Post report the United States is likely to ask all importers of Iranian oil to end their purchases or will be subject to U.S. sanctions.

The greenback has found support in recent weeks on the back of a gradual rise in U.S. 10-year Treasury yields and signs of strength in the world’s top economy, including better-than-expected retail sales in March, following a weak start to the year.

“It’s better to say that the euro has been weak rather than that the dollar is strong,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“Traders have mostly priced in the weakness of the euro zone economy by now,” Ishizuki said. “It’s a little bit difficult to see the euro weakening further from here, so I think it will be hard for the dollar to strengthen.”

The dollar index was last down a tenth of a percent at 97.383, drifting slightly lower after booking a 0.4-percent gain last week.

The index remained within striking distance of its 2019 high of 97.71 brushed in early March.

Investors’ immediate focus will be on U.S. existing home sales for March, due at 1400 GMT, for further clues on the health of the U.S. economy.

“Yields on U.S. bonds have picked up a bit. I think the dollar is bought to a certain extent in reaction to that,” said Kazushige Kaida, head of foreign exchange at State Street Bank.

In February, U.S. home sales surged to their highest in 11 months, as the housing market showed renewed momentum following a pause in interest rate hikes by the Federal Reserve.

The euro gave up nearly 0.1 percent to $1.1240, adding to last week’s losses of nearly half a percent after data on Thursday showed that activity in Germany’smanufacturing sector shrank for a fourth straight month in April.

Sterling was last a shade lower at $1.2996, dipping below the $1.30 handle and nearly 0.4 percent off a two-month low of $1.2945 hit last month.

The Canadian dollar gained about a quarter of a percent to C$1.3360 on the back of the rise in crude oil prices following the Washington Post report.

Against the Japanese yen, the dollar was about 0.1 percent higher at 111.94 yen, within reach of this year’s peak of 112.17 hit on Wednesday last week.

Starting on Saturday, on Japan will have an unprecedented 10-day holiday from late April to early May to mark the ascension of the new emperor, Crown Prince Naruhito.

Daiwa’s Ishizuki said he expected currency trading by Japanese investors to remain relatively light as traders and companies are shifting into holiday mode.

Dollar steadies after upbeat US data amid holiday-thin trade

The dollar steadied against a basket of currencies on Friday after hitting a 2.5-week high overnight as data pointed to a sturdy U.S. economy, while the euro was dented by weak manufacturing activity in Europe.

Many financial markets were closed for the Good Friday Easter holiday.

Currency markets remain open but volume is expected to be light.

The dollar index, which measures the greenback against a basket of six other major currencies, rose to as high as 97.485 overnight, its highest level since April 2. It last traded at 97.392 on Friday, down 0.1% on the day.

U.S. retail sales increased by the most in 1.5-years in March as households boosted purchases of motor vehicles and a range of other goods, the latest indication that economic growth picked up in the first quarter after a false start.

The economy’s strength was reinforced by other data on Thursday showing the number of Americans filing applications for unemployment benefits dropped to the lowest in nearly 50 years last week.

“In addition to the recent upticks in Chinese data, the latest U.S. retail sales numbers have helped to ease investor worries about the global economy. It’s pretty quiet trading due to the Easter holiday, though,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.

The picture was less bullish in the euro zone as data on Thursday showed that activity in Germany’s manufacturing sector shrank for a fourth straight month in April.

The euro fell against the dollar to as low as 1.1226, its lowest level in 1.5 weeks, after the worse-than-expected data from the Europe’s largest economy.

The single currency was last up 0.1% against the U.S. dollar at $1.1242, up 0.1% on the day.

In contrast, the weak European data pushed the yen higher to its one-week high of 111.765 yen at one point on late Thursday. The yen last stood at 111.935 yen to the dollar, within the recent narrow range.

The release of Special Counsel Robert Mueller’s report on Russia’s role in the 2016 U.S. election had little impact on markets.

Yen near this year’s lows as risk appetite improves

The yen hovered near its lowest level this year on Monday as more signs of stabilization in the Chinese economy and an upbeat start to the U.S. earnings season prompted investors to abandon the safe-haven currency to seek higher returns elsewhere.

The dollar firmed to 112.02 yen, near Friday’s high of 112.10, which was near its year-to-date high of 112.135 touched in early March.

The safe-haven Swiss franc has also eased against the euro, which strengthened to 1.1329 franc, recovering its losses made late last month to hit a three-week high on the franc.

The common currency traded at $1.1304, keeping intact its slow recovery from $1.1183 touched on April 2. It rose to as high as $1.1324 on Friday.

Chinese data published on Friday showed exports rebounded sharply and new bank loans increased far more than expected in March.

Although China’s imports remained weak, the data on the whole cemented hopes that the Chinese economy is bottoming out after a soft patch as Beijing has curbed de-leveraging efforts and stepped up support for the economy in recent months.

U.S. stocks also rallied on Friday on strong earnings from JPMorgan and an 11.5-percent jump in Walt Disney on news that it will start streaming services.

The S&P 500 index has reached its highest level in six months, coming within sight of testing a record high marked in September last year.

The more positive mood helped offset any concerns about upcoming trade talks between the United States and Japan, in which Washington is expected to include a currency provision in a bilateral trade agreement.

“We are seeing a classical risk-on market,” said Minori Uchida, chief currency analyst at MUFG Bank.

But Uchida also believes the dollar’s upside may be limited, given that speculators have already built up large long positions in the U.S. currency.

Data from U.S. watchdog on Friday showed speculators bolstered their net long U.S. dollar position in the latest week, pushing it to the highest since December 2015.

Against the yen, their net dollar long position was at the highest in about three months.

Elsewhere, the Australian dollar stood at $0.7173, having hit a 1-1/2-month high of $0.71925.

The British pound fetched $1.3080, stuck in its recent trading range as fears of a no-deal Brexit have receded for now.

Euro gains in surprise move driven by flows linked to Japan

The euro gained on Friday in a move dealers said may have be driven by anticipated currency demand arising from a Japanese bank’s plans to purchase a German multi-billion dollar aviation finance business.

The jump in the common currency occurred late in Friday’s Asia session and saw the euro rise to a 2-1/2-week high.

Markets are often quiet in the hours before European trade opens and thin liquidity has in recent months caused sudden jolts or “flash crashes” in major currencies including the Swiss franc.

But the heavily-traded euro-dollar currency pair, with a daily turnover of over $1 trillion, has recently traded in a narrow range at a time when volatility in foreign exchange markets is at a multi-year low, said Elisabeth Andreae, an FX strategist at Commerzbank.

“It is remarkable that particularly in this market environment we see jumps even in EUR-USD typically during Asian trading times. This morning we saw a move from $1.1260 to $1.1290 in one fell swoop,” she said.

The euro rose 0.35 percent to $1.1289 after touching $1.1294, its highest since March 26. The common currency also advanced about 0.4 percent to 126.23 yen, its strongest since March 21.

Dealers said speculators were buying the euro in response to reports on Mitsubishi UFJ Financial Group’s planned purchase of the aviation financing business of Germany’s DZ Bank. As of June last year, the portfolio of that business stood at 5.6 billion euros.

The transaction was announced on March 1 and MUFG said the transaction was expected to close after June.

Pressured by the stronger euro, the dollar index against a basket of six major currencies was down 0.2 percent at 96.991, giving up most of the previous day’s gains.

Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo expected the common currency to hold on to its gains.

“It is not really a surprise that the euro is capable of reacting quickly to potentially positive factors, given the fundamentals surrounding the euro zone economy are showing signs of improvement.”

This week both France and Italy reported higher than expected industrial output in February, offering positive signs for the bloc after some downbeat data.

With the dollar broadly lower, the pound rose 0.2 percent to $1.3078 to cancel out most of the previous day’s losses.

Volatility for sterling plunged after a midweek deal at an emergency European Union summit to postpone Britain’s exit from the bloc to Oct. 31. The deal meant Britain would not crash out this week without an agreement.

Fed minutes cap dollar, pound steady after Brexit extension

The dollar hovered near two-week lows on Thursday as Federal Reserveminutes reinforced its recent dovish policy tilt while the pound held steady after European leaders extended the deadline for Britain to leave the union.

Currency markets are also awaiting key economic data from the world’s second-largest economy with March Chinese trade figures due on Friday and first quarter gross domestic product due next week.

The U.S. dollar lacked momentum, with its index against six other currencies hovering near a two-week low, as the minutes from the Fed’s last meeting cemented its recent dovish policy stance with no change to rates expected this year.

The dollar index last stood at 96.93, flat on the day after having slipped to a two-week low of 96.823 on Wednesday.

U.S. central bankers also debated possible policy moves the Fed could make after it ends its balance sheet reduction program by September, with some advocating purchases of U.S. Treasury securities at that point.

“Some people say the minutes contained few surprises but a close look suggests the Fed is likely to become more dovish as time goes by,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

The U.S. consumer price data released on Wednesday also painted a mixed picture, with annual core CPI inflation slipping to 2.0 percent in March, the smallest increase since February 2018.

The dollar changed hands at 111.07 yen, having fallen 0.58 percent so far this week.

The greenback also gave up its earlier gains against the euro that were driven on Wednesday when European Central Bank President Mario Draghiunderscored growing risks facing the euro zone economy.

The ECB left its ultra-easy stance unchanged as expected and Draghi noted that economic data was weak.

He also confirmed the ECB was considering if measures were needed to mitigate the impact on banks of its negative deposit rates as well as the pricing of new cheap two-year loans to banks.

The euro last held at $1.1276, recovering from Wednesday’s low of $1.12295, keeping intact its slow uptrend from $1.1183 touched on April 2.

It is up 0.52 percent so far, which will be its first weekly gains in four weeks if sustained.

The British pound stood little changed at $1.3097, staying in a triangle holding pattern between $1.2945 and $1.3380 during the past month or so.

Sterling showed no reaction after the EU delayed the deadline for Brexit for the second time in less than a month, in line with market expectations that Britain will not crash out of the bloc on Friday without a deal.

Still, the decision did little to boost clarity on exactly how, when, or even if at all, the UK will leave the EU, is keeping the pound in check.

“At least there won’t be a no-deal Brexit this month. But while I’m no expert on British politics, it seems difficult for the parliament to come to any agreement,” said Kazushige Kaida, head of forex at State Street Bank.

“They just kicked the can down the road. Once the dust settles, I would expect to see selling in sterling,” he added.

The implied volatilities on the pound’s options plunged, with three-month volatilities falling to 8.325/8.825 percent, a level last seen in late August.

It has slipped below the actual volatilities over the past three months, which stood at 9.17 percent on Thursday.

The Australian dollar dipped 0.15 percent to $0.7157, having hit a six-week high of $0.7175 on Wednesday after the country’s central banker signaled the outlook for interest rates was still uncertain and stopped well short of adopting an outright easing bias as some had wagered on.

It barely moved after China’s factory-gate inflation picked up for the first time in nine months in March, edging away from deflationary territory, in a fresh sign of a boost to economic activity from stimulus.

Commodity currencies including the Aussie were also helped by recent firmness in commodity prices.

The South African rand traded at 13.9175 to the dollar, having touched a six-week high of 13.8975 the previous day.