Stronger than expected German industrial production data had little impact while the trade data recorded unchanged exports or the month with a 2.1% annual decline. The Euro-zone Sentix investor confidence index declined sharply to -17.1 for March from 5.2 previously and below consensus forecasts of -11.0, reinforcing underlying Euro-zone growth concerns.
As equity markets declined sharply, there were stronger expectations that the ECB would cut interest rates at this week’s policy meeting. There were also increased fears over the Italian outlook, especially with heavy selling in the banking sector.
Nevertheless, the Euro still gained an element of defensive support and short covering given the very strong current account position. Volatile trading continued with Euro/dollar volatility at 35-month highs as US data releases had no significant impact.
Markets expected further aggressive action by the Federal Reserve with futures markets indicating a 100% chance that the Federal Funds rate would be 0.50% or lower following the March 18th policy meeting. The on-going slide in US yields continued to undermine the dollar, although it did recover slightly from 13-month lows with the Euro settling around 1.1450.
After the US close, the Italian lock-down was extended nationwide to help contain the coronavirus which limited Euro support. The dollar also rallied significantly on hopes for US support measures with the Euro retreating to lows below 1.1350.
Global equity markets remained under pressure ahead of the New York open with the dollar trapped lose to 102.0 against the Japanese currency as the underlying flow of funds into defensive assets continued. US equities were suspended for 15 minutes shortly after the market open as S&P 500 index declined 7% before a tentative rally.
The US 10-year yield was held only just above 0.50% which further eroded underlying US currency support. There were fresh losses to near 102.00 as Wall Street indices came under sustained pressure once again, but the support level held.
Risk appetite strengthened in Asia on Tuesday with the main catalyst President Trump’s promise of a fiscal support package. There will be press conference on Tuesday and Treasury Secretary Mnuchin also fuelled expectations of support measures. The Bank of Japan also indicated that further stimulus measures will be sanctioned if necessary at next week’s meeting. Markets also remained wary over potential Bank of Japan intervention to curb yen losses. Equity markets rallied sharply with US yields also recovering ground and the dollar strengthened sharply to 105.00 before settling around 104.50.
Sterling maintained a relatively firm tone ahead of Monday’s New York open despite very weak global risk conditions and the slide in oil prices. The UK currency peaked at 1-month highs around 1.3200 before correcting while the Euro was held below 0.8700 in choppy trading. Underlying volatility inevitably remained high with markets also waiting for the government’s latest coronavirus update, but there was no immediate shift in advice. UK sources indicated that the government would table a number of legal texts including a draft Free Trade Agreement before next week’s latest round of trade talks with the EU.
There was also an element of caution ahead of Wednesday’s budget statement, especially with uncertainty over potential spending commitments. There was also some speculation that the Bank of England would cut interest rates in a co-ordinated move. Overall, Sterling consolidated around 1.3125 with the Euro around 0.8715. BRC retail sales data recorded an annual like-for-like 0.4% decline for February and a dollar recovery pushed Sterling below 1.3050 ahead of further data releases.
Swiss sight deposits increased to CHF598.5bn in the latest week from CHF595.7bn previously which suggested further National Bank intervention to prevent franc gains. Nevertheless, the Swiss currency continued to attract defensive support as equity markets remained under heavy pressure and fear dominated.
The Euro dipped to lows near 1.05 before a recovery on potential intervention while the dollar found some support below 0.9200.
A recovery in risk appetite pushed the franc weaker on Tuesday with the dollar near 0.9350 and the Euro above 1.0600.