The dollar continued to decline sharply ahead of Friday’s New York open as US yields continued to move rapidly lower. US non-farm payrolls increased 273,000 for February, well above consensus forecasts of 175,000 and the January figure was also revised higher to 273,000 from 225,000 with a second successive solid increase in construction jobs. The dollar gained some relief, although the impact was limited as markets were still focussed on coronavirus fears as wider volatility increased.
The Euro dipped lower in late trading with a move below 1.1300 on dollar short covering after earlier 8-month highs just above 1.1350. Overall, the US registered its worst week since May 2016 with a slide of more than 2%.
CFTC data recorded a notable decline in short, speculative Euro positions for the week and there will have been a further decline since the data was compiled, but overall positioning will still tend to erode dollar support. Over the weekend, oil prices collapsed to 4-year lows following the breakdown in OPEC production curbs and start of a price war. The slide triggered further major turbulence with commodity currencies under heavy pressure and wider risk aversion. The Euro gained fresh support at the Asian open despite a surge in fear surrounding the situation in Italy as quarantine rules were tightened. A wider stampede into defensive assets underpinned the single currency with the dollar under pressure at 16-month lows amid increased speculation that the Federal Reserve would have to sanction a further emergency rate cut. The Euro strengthened to 13-month highs near 1.1500 before a correction to 1.1400 with markets braced for further very volatile conditions.
US equity futures remained under sustained pressure ahead of the New York open with the S&P 500 index declining over 2.5% while the 10-year bond yields declined to below 0.75%. The dollar remained under pressure with a slide to 105.00.
There was speculation that the Bank of Japan would intervene to block further yen gains which triggered an element of caution, but the dollar struggled to make significant headway. As equities pared losses, the dollar settled around 105.35. CFTC data continued to record a net short yen position of over 40,000 contracts, maintaining the potential for short covering
Risk appetite declined very sharply again over the weekend with the dollar opening below 104.50. As oil prices crashed to below $30 p/b, there was a fresh increase in fear and rapid decline in equities as the Nikkei 225 index declined to 14-month lows below 20,000 on Japan recession fears and wider concerns over the global outlook. US equity futures were also suspended after they hit limit down. The yen surged as fear dominated and the dollar slumped to 3-year lows below 102.00 before a tentative recovery on potential intervention as Japanese Finance Minister Aso warned against yen strength.
Sterling maintained a firm tone during Friday, primarily due to underlying US dollar weakness and broke above the 1.3000 level for the first time in over a week. With the Bank of England holding off from an immediate cut in interest rates, overall yield spreads underpinned Sterling demand. A government spokesman stated that this week’s budget would set out considerable investment which helped underpin the currency, although global events tended to dominate as volatility increased sharply. The UK currency held above 1.3000 against the dollar and the Euro retreated to near 0.8650 late in the US session. The slide in oil prices and very weak risk appetite will tend to erode Sterling support with renewed pressure for Bank of England rate cuts. Sterling held firm above 1.3100 against the dollar, but the Euro made net gains to around 0.8720.
Higher Swiss currency reserves increased maintained expectations that the National Bank intervened to curb franc strength.
There were also concerns over a coronavirus outbreak in Italy and the Swiss currency secured further defensive support.
The Euro declined to below 1.0600 with the dollar at 2-year lows around 0.9370. The surge in demand for defensive assets triggered strong demand for the Swiss franc on Monday with the Euro dipping to 4-year lows near 1.05 before a recovery while the dollar also briefly hit 4-year lows around 0.9200 before a slight recovery.