Europe Summary and Highlights 5 March

European morning session

EUR/USD extended gains through the European morning session, gaining a big figure to a high of 1.0722 before slipping back below 1.07 by the end of the morning. The EUR benefitted from sharply higher EUR yields in response to the German initiative to remove the debt brake and increase military spending in response to Trump’s disengagement from Europe. The parties hoping to form Germany's next government on Tuesday agreed to create a EUR500 bn infrastructure fund and overhaul borrowing rules to revamp the military. German 10 year yields rose 20bps with 2 year yields up 15bps as markets priced in less ECB easing in response to the increased spending plans.

While the USD was also generally weaker, the EUR also gained on the crosses. USD/JPY fell back 35 pips to 149.35 and AUD/USD gained 20 pips to 0.6285. GBP/USD rose 40 pips to 1.2830, but EUR/GBP was also up 30 pips to 0.8335.  EUR/CHF gained 30 pips to 0.9390. Only the scandis kept pace with the EUR. EUR/NOK was steady at 11.80, but the SEK was the best performer on the morning, with EUR/SEK falling 6 figures to 11.02.

Datawise, Swiss CPI was slightly higher than expected at 0.6% y/y in January. The S&P composite PMI indices for the Eurozone and UK were unrevised at 50.2 and 50.5 respectively. Eurozone PPI was higher than expected at 1.8% y/y.

Asia session

The market stays lively with the ebb and flows of tariffs and retaliation. Australian Q4 GDP beats estimate by a touch but the choppy sentiment and stronger USD has overshadowed the data for the Aussie. Regional equities are outperforming their U.S. counterpart with the HSI leading while U.S. major equity indexes are in the red. AUD/USD is down 0.36% to 0.6248, NZD/USD down 0.3% to 0.5674 while USD/CAD rose 0.23%. There were a slate of potential measures that is going into the Chinese National People’s Congress for consideration but does not seem to affect market sentiment for now.

After a roller coaster session on Tuesday, the USD/JPY is relative quiet/undecided on Wednesday. The BOJ Deputy Governor Uchida says if forecasts met the Bank will adjust policy further, the same hawkish rhetoric he has been stating for a while and has provided little new impetus on a timeline.  JGB yields are outperforming the  U.S. Treasury Yields and see USD/JPY up 0.02% to 149.81. Japan FM Kato says he has shared views with US counterpart on FX rates but we have not heard anything new from the U.S. side yet. Else, EUR/USD is down 0.05% and GBP/USD is down 0.04%.