EUR / USD
The German IFO institute issued its final report for March business confidence. The headline index declined further to 86.1 from the flash reading of 87.7 and a substantial decline from 96.0 for February. This was the sharpest monthly decline on record and the weakest reading since June 2009. There was a further decline in the current conditions index and a slightly larger retreat in the expectations component.
According to sources, the ECB is broadly in favour of Outright Monetary Transactions (OMT) if needed, although there would be the risk of fresh legal action. The German lower house suspended the debt brake and approved a EUR156bn supplementary budget to support the economy.
US durable goods orders increased 1.2% for February, slightly above consensus forecasts, although underlying orders declined 0.6% with little impact.
The latest data continued to register a sharp increase in the total number of US coronavirus cases a jump of over 10,000 on the day while the overall death toll increased to 737 from 544. The dollar dipped lower in early Europe before regaining ground with the Euro back below 1.0800. There were, however, fresh dollar losses towards the European close as underlying funding stresses remained lower. The Euro advanced to near 1.0850 as volatility remained high with extended gains to 1.0880 towards the New York close as the US currency retreated further from 3-year highs. Choppy trading will inevitably continue in the short term.
The Euro moved above the 1.0900 level on Thursday with an important element of nervousness over the weekly jobless claims data due for release at the New York open given expectations of a potential surge to over 1.5 million. German consumer confidence declined sharply for March.
There were increased concerns over coronavirus developments in Japan with reports of a jump in cases in Tokyo and an instruction for residents to stay at home over the weekend. Equities declined ahead of the New York open with S&P 500 futures dipping into negative territory in jittery markets. There was, however, renewed support for equities ahead of the European close as risk appetite strengthened again. The yen lost ground on the crosses and the dollar strengthened to above 111.50. Wider US currency losses triggered a limited retracement later in US trading.
There were delays to the US fiscal support package due to concerns over drafting errors, but the $2.0trn Bill was approved in the Senate after the New York close. A vote is now scheduled in the House on Friday with Trump expected to sign the Bill immediately after the vote. US equity futures declined amid fears over a further sharp increase in US cases. The dollar lost some ground, although concerns over the Japanese outlook also increased amid fears over a surge in Tokyo cases and potential lockdown in the city. With a more defensive risk tone and wider losses for the US currency, the dollar declined to just below 110.50.
Sterling continued to gain ground in early Europe on Wednesday with an element of short covering while stronger equity markets also provide protection. The UK CBI retail sales index declined only slightly to -3 for March from 1 the previous month and above consensus forecasts of -12. Retailers are expecting a sharp decline for April and there was inevitably huge divergence between sectors. Food retailers reported a huge gain in sales while there were heavy losses for clothing and furniture.
The government and Bank of England reinforced the message to the commercial banks that must keep lending to businesses in an attempt to support the economy.
Overall confidence in the outlook remained weak with fears that the UK response would not be sufficient to contain the coronavirus outbreak while the number of new cases also increased sharply. From highs above 1.1950, Sterling declined to lows below 1.1700 against the dollar in very volatile trading.
As equity markets moved higher again, the UK currency secured fresh support and Sterling advanced once again to highs around 1.1900 towards the New York close. The Bank of England will hold its regular policy meeting today with Sterling edging lower as the Euro traded around 0.9200 while retail sales edged lower for February.
The Credit Suisse investor sentiment index declined sharply to -45.8 for March from 7.7 previously and the lowest reading since February 2015 after the Swiss franc surged. The Swiss National Bank announced that it would set up a refinancing buffer and deactivate the counter-cyclical buffer in order to support credit to the business sector. According to the bank, the coronavirus is having a serious impact on the economy. The Euro gradually regained ground to highs near 1.0640 around the European close with the dollar retreating to around 0.9760. The franc was little changed on Thursday as unease over the Swiss outbreak continued to increase.