Global market watch - 5th March 2021
The pound received some good news when it was announced that the US is dropping tariffs on UK goods caught up in the longstanding Airbus-Boeing illegal aid dispute. The market bought GBP/EUR more than GBP/USD on this news, as it waited for Fed Chair Powell to speak in late European trading. When he did, the dollar was bought across the board knocking GBP/USD lower.
With US bond yields pushing higher again, the single currency was on the back foot for European trading. EU retail sales for January also encouraged selling as they fell 5.9% and much worse than the 1.4% expected. The unemployment rate however improved to 8.1% and better than the 8.3% expected. German factory orders for January have started the day on a promising note rising by 1.4% from Decembers 2.2% decline.
The dollar started the day squeezing higher across the board on bond yield concerns, with the weekly unemployment claims being released approximately as expected at 745k. Fed Chair Powell in his last address before the FOMC meeting on March 17th said inflation expectations will take some time to change. He also stated that it will take time to return to maximum employment and the Fed will be patient if they see a transitory rise in inflation. He then confirmed that the Fed’s first priority was unemployment and forcefully said interest rates would not be changed until inflation was around 2.5%. Finally, and this really started USD buying, Powell said he is well aware of the history of high inflation and won’t allow it. The dollar gained 0.75% against the euro on this news.
The AUD couldn’t particularly hang on to all of its trade balance gains during European trading and slumped later in the day on Fed Chair Powell’s comments.