EUR / USD
The US core PCE prices index increased 0.2% for February, in line with consensus forecasts with the year-on-year rate at 1.8% from 1.7% previously. Inflation trends will, however, not have a significant impact on monetary policy expectations in the short term. The revised University of Michigan consumer confidence index for March declined to 89.1 from the flash reading of 95.9. The March figure overall was the fourth-largest decline in 50 years and weakest reading for three years.
Dallas Fed President Kaplan stated that small and medium-sized businesses were worried about their survival. Atlanta head Bostic stated that the economy may rebound robustly, but forecasting is tough and US coronavirus developments will be watched closely.
The dollar briefly secured fresh gains into the New York open with the Euro retreating to lows near 1.0950 before a recovery. There were, however, sharp renewed US losses in US trading as the Euro secured further gains. Momentum gathered pace late in the session with the Euro breaking above 1.1100 to highs near 1.1150. Overall, this was the sharpest weekly dollar decline since 2009 with a 3.9% slide as the easing of liquidity pressures continued.
The Federal Reserve announced that the pace of daily bond purchases would be reduced to $60bn per day in April, although this will still be a massive amount.
CFTC data recorded a further sharp increase in long Euro positions to over 60,000, the highest level since June 2018.
The Italian death toll increased to above 10,000 and the Spanish toll also increased sharply while US cases move to above 140,000.
There is the risk of further very volatile trading towards the quarter-end on Tuesday and the dollar regained some ground on Monday with the Euro around 1.1085.
Wider dollar losses and a significant opening retreat on Wall Street pushed the US currency to lows below 108.00 against the Japanese yen. US equity markets also remained on the defensive with a 3.35% retreat in the S&P 500 index which further eroded US sentiment with the dollar held below 108.00 at the New York close.
Over the weekend, Japanese Prime Minister Abe promised an unprecedented fiscal stimulus with details set to be released in a supplementary budget in on April 7th. Abe stated that the stimulus would be greater than the JPY57trn put in place following the financial crisis.
The US House of Representatives approved the $2.2trn fiscal support package and was signed into law. On Sunday, however, President Trump announced that social distancing measures would be extended until the end of April, abandoning talk of re-opening the economy by Easter. Sentiment was also unsettled by reports that China’s death toll was substantially under-reported. China also sanctioned a cut in key interest rates and there was further speculation of year-end flows into the Japanese currency. US equity futures secured limited gains, but the yen gained further ground with the dollar dipping to 107.10 before a recovery to 107.70.
On Friday, Prime Minister Johnson and Health Secretary Hancock both announced that they had tested positive for coronavirus. Symptoms were, however, described as mild and Johnson will continue to head the government while in isolation. Sterling dipped lower, although high volatility was the key element and it recovered quickly.
There was further choppy trading in the New York session with a break above 1.2300 against the dollar while the Euro retreated to 2-week lows around 0.8950. As the dollar registered further losses, the UK currency pushed above the 1.2400 level in late Europe to a peak around 1.2480.
CFTC data recorded only a small decline in long Sterling positions to 11,000 from 19,000, limiting the potential scope for UK currency buying. Ratings Agency Fitch announced a cut in the UK credit rating to AA- from AA with a negative outlook due to a substantial weakening of the fiscal position and economic damage due to the coronavirus outbreak. Fitch also expects a GDP decline of close to 4% for 2020 before a 2021 recovery. Sterling dipped back below 1.2400 against the dollar in Asia on Monday, although this primarily reflected a stronger US currency with the Euro just below 0.8950 and the UK currency edged higher in early Europe.
The Swiss franc was able to resist further losses on Friday as choppy trading continued. The Euro was unable to hold above the 1.0600 level even when the single currency advanced against the dollar. The US currency also declined to lows near 0.9550. CFTC data recorded a small net long position in non-commercial contract, little changed from the previous week. The number of Swiss coronavirus cases increased sharply to near 15,000 which increased unease over the outlook and limited Swiss currency support. The franc was little changed on Monday and tended to underperform the Japanese currency.