EUR / USD
US initial jobless claims declined only marginally to 6.60mn in the latest week from an upwardly-revised 6.87mn the previous week with an increase over 18.5mn in the latest 3-week period, maintaining fears over the outlook and deep GDP contraction in the short term.
After the New York open, the Federal Reserve announced a further $2.3trn support package for the economy. There will be a new $600bn loan package for small business with interest and principal payments suspended for 12 months. The Fed will also buy further assets including mortgage-backed securities and Chair Powell reiterated that the bank was prepared to take further action if necessary. The dollar moved lower after the announcement, especially as risk appetite improved further.
The Eurogroup eventually approved a EUR540bn support package for the Euro-zone economy. There was no official backing for coronabonds, but the rhetoric was sufficiently flexible to secure Italy’s support. The ability to reach some form of agreement supported Euro sentiment with a move back above 1.0900 against the dollar.
US consumer prices declined 0.4% for March with the year-on-year rate at 1.5% from 2.4% previously and below census estimates of 1.6% as energy prices declined sharply. The core rate declined to 2.1% from 2.3% previously. With a weaker dollar tone, the Euro pushed to highs above 1.0950.
CFTC data recorded a further increase in net long positions with the dollar short position at a 2-year high, limiting potential scope for further dollar selling. The Euro was unable to make headway on Monday in thin markets with a retreat to the 1.0900 area. The single currency was hampered by reports that travel restrictions could remain in place until at least October. The dollar did lose traction on Tuesday as commodity currencies made gains and the Euro advanced to around 1.0940.
US equity markets moved higher following Thursday’s fresh support package and US indices for the week as a whole posted the strongest weekly gain since 1974. The dollar dipped lower following the Fed announcement on Thursday and was unable to regain any traction on Friday with selling interest in the 108.50 area.
Chinese data recorded a much larger than increase in new loans which helped underpin risk appetite.
CFTC data recorded a small increase in long yen positions, limiting the scope for Japanese currency buying.
Fed Vice-Chair Clarida stated that the central bank will keep interest rates near zero until the economy is back on track. US equity futures declined on Monday and the dollar dipped below the 108.00 level. Chinese trade data for March was also better than expected with exports declining 6.6% in the year to March compared with expectations of a 13.9% decline with the decline in imports held at 0.9% compared with consensus forecasts of 9.8%. The data helped underpin global risk appetite, although the dollar was held around 107.70 amid a wider softer tone with only a slight recovery from 107.50 lows.
Sterling held a firm tone on Thursday with support from the robust tone in global risk appetite. The UK currency moved above 1.2400 as the US currency lost ground. UK markets were closed for a holiday on Friday with limited moves, but the UK currency held a firm tone as global moves dominated.
The total UK death toll has increased to over 11,000, but there were also some positive developments as Prime Minister Johnson was discharged from hospital.
Sterling made net gains on Monday with a 1-month high above the 1.2500 level against the dollar in thin trading conditions as further gains in commodity currencies helped support the UK currency. The Euro also declined sharply to 1-month lows near 0.8700.
Markets remained uneasy over the outlook with expectations that the economy would decline very sharply for the second quarter. Although there has also been increased pressure form the Treasury for lockdown measures to be eased in order to protect the economy, the lockdown will continue. Sterling, however, gained support from the stronger tone in risk appetite and the Euro was held just above 0.8700 in early Europe on Tuesday with Sterling at fresh 1-month highs near 1.2550.
The Swiss franc has been held in tight ranges during the holiday period with the Euro unable to make significant headway and trapped close to the 1.0550 area despite notable gains in global equities. The single currency also failed to benefit from the Eurogroup support package. The dollar retreated to lows near 0.9630 and a correction to the 0.9680 area faded amid wider US losses. The latest data on sight deposits will be released on Tuesday with markets assessing whether the National Bank has maintained the increased rate of intervention to limit franc gains. The franc could gain ground if the pace of sales has faded and the dollar held around 0.9650.