Daily FX Update, 07 April 2016

OVERNIGHT MARKET UPDATE:

·         US – Fed officials appeared reluctant to lift interest rates at their next meeting, which takes place at 26-27 April, according to the latest FOMC minutes. “Several” Fed officials, saying they backed a cautious approach to raising interest rates, “noted their concern that raising the target range as soon as April would signal a sense of urgency they did not think appropriate,” the minutes said. At the same time, “some” other Fed officials spoke in favour of an April rate hike. The minutes also show broad concern about the fragile state of the financial markets and the global economy

·         Euro area – German industrial production fell 0.5% m/m in February but wasn’t as weak as market expectations (-1.8%), as weak global demand weighed on domestic activity. Annual growth was just 1.3%, but again this was better than expected. 

·         Japan – The chief government spokesman followed Abe's comments by saying that Tokyo was watching the currency market closely and would respond "as appropriate." But markets believe Japan is hamstrung in what it can do in the run-up to G7 meetings in May.

·         Currencies – The USD was weak against the JPY as the market concluded that BoJ willingness to drive JPY weakness is over and as the US Fed highlighted its fears of policy asymmetry.

·         Equities – US bourses closed higher, boosted by soaring oil prices and the FOMC minutes which signalled reluctant to raise rates as early as this month.

·         Rates – US Treasury yields rose as a rally in risk assets – mainly equities and oil – prompted the selling of “safe” assets. 10-year UST yield ended up 3 bps to 1.75%. 

·         Energy – Both Brent and WTI crude oil prices closed 5.2% higher after the EIA data showed a large and unexpected fall in US crude inventories and an increase in demand by refineries. Oil inventories fell by 4.9 million barrels, while the US refiners operated at 91.4% of operable capacity. 

·         Precious Metals – Gold prices finished lower as positive reading for the China services data and the rally in crude oil prices improved tone for risk curbed gold support.