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The European currencies (GBP, EUR, CHF) outperformed their peers during the morning London session, with the pound ultimately claiming the top spot.

The Kiwi, meanwhile, encountered selling pressure across the board, likely because of the risk-off vibes in Europe.

  • German WPI m/m: 0.0% vs. 0.4% expected, -0.3% previous
  • Swiss PPI m/m: -0.2% vs. 0.4% expected, 0.3% previous
  • U.S. retail sales report coming up
  • Fed officials will be speaking later

Major Events/Reports:

Wakatabe speaks

BOJ Deputy Governor Masazumi Wakatabe was giving a speech in Japan’s National Diet at the start of the session.

And he said that: “We need to be mindful of the danger, or risk, a prolonged low-interest rate environment would weigh on bank profits and that such impact could accumulate.”

Even so, he repeated the BOJ’s assessment that: “Inflation has yet to reach our 2 percent target but price growth is on an upward trend.”

And that’s why he believes that “By patiently maintaining our current policy, we can heighten inflation expectations.” And higher inflation expectations, in turn, will help to drive up actual inflation.

Oil drops hard

Commodities were mixed during the session. However, oil benchmarks were quite noticeably taking hits, which market analysts attributed to disappointing news that U.S. oil drilling activity picked up, as well as waning concern over Middle East tensions.

  • U.S. WTI crude oil was down by 1.14% to $66.62 per barrel
  • Brent crude oil was down by 1.25% to $71.67 per barrel

Risk aversion in Europe

The major European equity indices had a mixed start. However, they were mostly in the red by the end of the morning London session. And that’s a sign that risk aversion was the more dominant sentiment in Europe.

And market analysts say that disappointing news for advertising group WPP, lingering geopolitical tensions over Syria, as well as expectations that the U.S. will announce additional sanctions against Russia, are supposedly to blame for the skittishness in the markets.

  • The pan-European FTSEurofirst 300 was down by 0.27% to 1,482.76
  • Germany’s DAX was down by 0.10% to 12,429.65
  • The blue-chip Euro Stoxx 50 was down by 0.16% to 3,442.45

Will risk sentiment improve later?

The major European equity indices had a hard time during the session. However, there are signs that risk sentiment may improve later since the U.S. equity indices were broadly higher.

  • S&P 500 futures were up by 0.65% to 2,674.50
  • Nasdaq futures were up by 0.68% to 6,686.00

Another sign that there may risk sentiment may improve is the fact that global bond yields were higher.

And bond yields rose, market analysts say, because investors were expecting that the military conflict in Syria will not escalate further, which weakened safe-haven demands for bonds.

  • German 10-year bond yield up by 5.83% to 0.545%
  • French 10-year bond yield up by 3.16% to 0.776%
  • U.K. 10-year bond yield up by 3.13% to 1.482%
  • U.S. 10-year bond yield up by 1.26% to 2.864%
  • Canadian 10-year bond yield up by 1.56% to 2.275%

Major Market Mover(s):

GBP

The pound outpaced the euro and the Swissy and was the best-performing currency of the morning London session. Not only that, the pound’s bullish run during the session also means that the pound is now the best-performing currency of the day.

As for catalysts, there weren’t really any, but some market analysts pointed to preemptive positioning ahead of this week’s top-tier U.K. data on the expectations that they’ll support a May BOE rate hike.

GBP/USD was up by 68 pips (+0.48%) to 1.4309, GBP/AUD was up by 82 pips (+0.45%) to 1.8420, GBP/NZD was up by 113 pips (+0.58%) to 1.9488

EUR & CHF

The euro and the Swissy were both in demand during the session. And between the two, the euro (barely) had the upper hand.

The Swissy was likely in demand because of the risk-off vibes in Europe. And all the more so since the yen was actually a net loser, likely because of rising bond yields.

As for the euro, there’s really no clear reason for the euro’s strength, but it’s possible that the euro may have been pushed higher by the surge in European bond yields.

EUR/USD was up by 42 pips (+0.34%) to 1.2369, EUR/AUD was up by 31 pips (+0.20%) to 1.5923, EUR/NZD was up by 61 pips (+0.36%) to 1.6846

USD/CHF was down by 31 pips (-0.33%) to 0.9601, AUD/CHF was down by 12 pips (-0.16%) to 0.7458, CAD/CHF was down by 14 pips (-0.18%) to 0.7616

NZD

The higher-yielding Kiwi was the worst-performing currency of the morning London session, very likely because of the risk-off vibes. Although it’s also possible that we’re seeing some profit-taking ahead of New Zealand’s CPI report. After all, the Kiwi has been a net winner for a couple of weeks already.

NZD/USD was down by 8 pips (-0.11%) to 0.7341, NZD/CAD was down by 15 pips (-0.16%) to 0.9254, NZD/CHF was down by 25 pips (-0.36%) to 0.7048

Watch Out For:

  • 12:30 pm GMT: Headline (0.4% expected vs. -0.1% previous) and core (0.2% expected, same as previous) readings for U.S. retail sales
  • 12:30 pm GMT: Empire State manufacturing index (19.8 expected vs. 22.5 previous)
  • 1:30 pm GMT: CB’s U.S. leading index (0.0% previous)
  • 2:00 pm GMT: U.S. business inventories (0.6% expected, same as previous)
  • 2:00 pm GMT: NAHB U.S. housing market index (71 expected vs. 70 previous)
  • 4:00 pm GMT: Minneapolis Fed President Neel Kashkari will speak
  • 4:00 pm GMT: Dallas Fed President Robert S. Kaplan will speak
  • 5:15 pm GMT: Atlanta Fed President Raphael Bostic is scheduled to speak