European stocks moved marginally higher at the open on Thursday as investors continue to react to the Federal Reserve’s upbeat outlook on the U.S. economy and a dovish tone on monetary policy – the central bank signaled that it does not expect to hike interest rates through 2023. As such, global equities rallied following the meeting while the safe-haven dollar came under the selling pressure amid a retreat in long-term bond yields.
Elsewhere, the ECB’s Lagarde said in her recent statement that risks surrounding the Eurozone growth outlook have become more balanced, while downside risks remain in the near-term. She also highlighted that the central bank to continue monitoring developments in the euro exchange rate. As for the recent rise in yields, Lagarde noted that yields increase is getting ahead of the economic recovery while the ECB is not focused on blips in inflation. Of note, German 10-year bund yields are up 2 bps to -0.27% so far today.
Later today, investors will focus on the Bank of England meeting although no policy change is expected. Also, regional investors will be awaiting the conclusion of the EMA safety review into the coronavirus vaccine developed by AstraZeneca and the University of Oxford.
Against this backdrop, the FTSE 100 in London sheds 0.25% to 6,745, Italy’s FTSE MIB gains 0.30% to 24,352, France’s CAC 40 is up by 0.13% to 6,062, while the German DAX 30 is 0.88% higher, at 14,725. US stock index futures are holding marginally higher following the rally seen overnight.
In currencies, the dollar reversed north in recent trading, to erase losses witnessed in the aftermath of the Federal Reserve’s dovish message. Following a knee-jerk bearish reaction, the USD index is back on the offensive, reclaiming the positive ground around 91.60 during the European hours in tandem with higher US yields. Of note, yields of the key US 10-year Treasuries surpassed the 1.70% level on Thursday even as the Fed reaffirmed the accommodative stance of its monetary policy.
As such, EURUSD failed to extend gains to the 1.2000 figure during the recent bounce and was last seen flirting with the 1.1940 area, trading down 0.30%. If this intermediate support gives up, the 1.1900 level will come back into market focus. On the upside, the key hurdle for euro bulls arrives at 1.2015 where the 20-DMA lies, followed by the 100-DMA around 1.2040.
Nathan Lambert, Head of Global FX Analytical Department