EUR / USD
German consumer confidence index declined sharply to 2.7 from 8.3 previously and the weakest reading since February 2009, reinforcing expectations of a slide in spending. Euro-zone M3 money supply increased 5.5% in the year to February from 5.2% previously.
The ECB announced that bond purchases under the new EUR750bn programme had started on Thursday, but sources indicated that there were no plans at the moment to deploy the Outright Monetary Transactions (OMT) programme with the new bond-buying programme seen as more effective.
Fears over the European coronavirus developments continued with a sharp increase in the number of cases in Spain, but US developments dominated.
Fed Chair Powell stated that the central bank still has room to take further policy action and that it will not run out of ammunition. According to Powell, the only limit for the Fed is the amount of backstop from the Treasury. He stated that there was nothing fundamentally wrong with the US economy and that it would rebound once the outbreak was brought under control. The dollar maintained a negative tone after Powell’s comments as liquidity pressures also eased.
Markets had been braced for a sharp increase in US jobless claims, but the data still came as a shock. Initial claims jumped to 3.28mn in the latest week from a revised 282,000 previously as companies laid-off workers. This was well above consensus forecasts and a record high by a huge margin as the previous record had been 685,000 in 1982. The claims data reinforced concerns that the economy overall would slide rapidly into recession, especially with further lock-downs in place.
Elsewhere, the Kansas City Fed manufacturing index declined sharply to -18 from 8 previously. Overall, the dollar continued to lose traction during the New York session with the Euro advancing to the 1.1030 area. The US currency continued to retreat on Friday as funding pressures eased with the Euro near 1.1050.
In comments on Thursday, new Bank of Japan board member Adachi stated that providing liquidity to markets was a better way to respond to economic crisis that cutting interest rates. The dollar continued to lose ground ahead of the New York open amid wider losses in the US currency. The dollar registered further losses following the Powell’s comments and jobless claims data with a break below the 110.00 level further undermining market sentiment.
US equities registered further sharp gains in early trading which curbed defensive dollar demand to some extent and the US currency found support just below 109.50.
China’s announcement that it was suspending entry of foreigners into China while those needing to travel for emergency purposes could apply for special visa which had some impact in undermining confidence. The House of Representatives will debate the support Bill on Friday, but there was some speculation that the vote would be delayed. The dollar maintained a softer tone on Friday with some reports of year-end yen buying by Japanese corporations also a factor pushing the US currency weaker. Overall, the dollar declined to lows around 108.25 before a slight correction with further volatility likely on Friday with position adjustment ahead of the weekend.
Sterling continued to edge higher in early Europe on Thursday as it recovered from over-sold conditions. The Bank of England held interest rates at 0.1% following the latest policy meeting with no further policy changes announced. The Monetary Policy Committee did, however, reiterate that it was ready to take further action if necessary. The latest reports from Bank of England Agents confirmed that activity had declined sharply over the past few weeks. From the bank’s perspective, there will be particular concerns of reports that banks were tightening loan criteria as a key message from the bank has been that lending must be sustained.
The potential for further action supported Sterling, although a firmer tone surrounding risk appetite and weaker US dollar had a more substantial impact. Overall Sterling posted the largest daily gain for three years against the dollar to around 1.2150 while the Euro retreated to around 0.9065. Forthcoming rounds of UK-EU trade talks have been abandoned, but Sterling continued to make net gains on Friday with highs near 1.2300 against the dollar before a correction and the Euro near 0.9000.
The Euro continued to edge higher during European trading on Thursday, although there was resistance close to the 1.0650 area. The dollar continued to lose ground and dipped to lows below 0.9650. Potential franc demand was undermined by a fresh round of gains in global equity markets with the on-going threat of National Bank intervention also a significant factor. Markets were also monitoring the Swiss coronavirus cases amid concerns over the domestic outlook as the number of cases continued to increase sharply. The dollar remained on the defensive on Friday with a dip below the 0.9600 level as the franc resisted further losses.