Daily FX Update, 19 April 2016

OVERNIGHT MARKET UPDATE:

·         US – Fed Vice Chair and New York president Dudley called US economic news “mostly favourable” and cited improvement in Europe’s growth outlook. Dudley said he’s confident that inflation will return to the Fed’s 2% target “as the labour market tightens further and the transitory factors that have held inflation down dissipate”. However, Dudley also noted that “monetary-policy adjustments are likely to be gradual and cautious, as we continue to face significant uncertainties and the headwinds to growth from the financial crisis have not fully abated”.

·         US – The NAHB housing market index held steady at 58 in April, reflecting an overall optimistic outlook in the market for new homes even as a gauge of current sales fell slightly.

·         Euro area – The Bundesbank monthly report said the German economy grew strongly in the first quarter but it is likely to lose momentum in the second quarter. Domestic factors contributed to growth while exports remained relatively weak in the first quarter. The bank warned that sluggish new orders and weak business expectations are likely to weigh on activity in the second quarter.

·         Currencies – USD is rising against the JPY, but is down against other major currencies. There has been little economic data to drive the direction of trading at the start of the new trading week and the market disappointment over the Doha failure waned.

·         Equities – Improved risk sentiment, given the rebound in oil prices and improved US corporate earnings provided a modest boost to equity markets.

·         Rates – US 10-year Treasury yields were up 2 bps to 1.77% as crude oil prices pared some of their losses and equities swung into positive territory.

·         Energy – Brent prices sold off heavily post the lack of agreement in Doha but then recovered as a labour strike in Kuwait cut output for a second day.

·         Precious Metals – Gold prices closed marginally higher in quiet dealing session, despite the rally in equity markets and the rebound in crude oil prices.