EUR / USD
There were further hopes that EU countries would gradually relax lockdown restrictions over the next few weeks. The difficulties in securing any kind of normality was, however, illustrated by comments from the Austrian government that large events will remain banned until the end of August.
Overall, markets continued to fret over the risks that political divisions between the national governments would undermine efforts to support the economy, especially after critical comments from French President Macron, and short-term economic damage will continue to intensify.
The Euro remained under pressure ahead of the New York open with lows just below 1.0820 against the US dollar. There was, however, a reversal in US trading as the dollar lost traction with the euro strengthening to the 1.0880 area with some pre-weekend position adjustment.
The Federal Reserve announced that it will slow the pace of bond purchases next week to $15.0bn per day from $30.0bn the previous week which provided an element of dollar support late in the New York session, although net purchases are still significantly larger than seen during the financial crisis.
CFTC data recorded a further net increase in long Euro positions to 87,000 contracts from 80,000 the previous week and the Euro will be vulnerable if these positions are scaled back. The data overall suggested little underlying change with a reluctance to engage in aggressive positioning due to the extreme level of uncertainty. The dollar made limited gains on Monday amid a more cautious tone surrounding risk appetite with the Euro trading around 1.0850.
US equities continued to make strong headway on Friday with the S&P 500 index making gains of 2.7%. There was overall optimism that US lockdown measures would start to ease with little overall impact from unease over further friction between President Trump and state governors. US yields moved higher after the Fed announced a reduction in bond buying plans, but the US currency was unable to gain significant support and settled around 107.50.
Trump stated that a deal on further economic stimulus could be secured on Monday even with congressional bickering. There was also an announcement that some tariff payments were be postponed which would free-up cash reserves. The Chinese central bank cut the 1-year prime lending rate to 3.85% from 4.05% which was a slightly larger than expected reduction with the 5-year rate cut to 4.65% from 4.75%. Japanese exports declined 11.7% in the year to March, maintaining underlying concerns over the outlook. Risk appetite remained subdued during the Asian session with the dollar around 107.90 amid a generally firm US tone.
Dollar demand by UK financial institutions at the daily auction increased to a 2-week high of $5.0bn on Friday, illustrating that there were still important underlying stresses. Bank of England Governor Bailey stated that large and small companies will need fresh equity and he also criticised the government over the loan programme for companies and stated that help needed to be provided faster. Bailey also stated that the government had not yet used its increased borrowing facility with the central bank. According to Bailey, the central bank would set out its views on the economic damage during May.
The UK government continued to insist that it would not ask for an extension to the Brexit transition period with fears that underlying uncertainty would have a negative Sterling impact over the next few weeks with talks due to resume on Monday.
The UK currency was, however, resilient during the day and tested resistance above 1.2500 as the dollar lost ground. It closed around this level with the Euro settling just below 0.8700 and close to 5-week lows. The Rightmove house-price data was released although it warned that it was unable to provide meaningful data with the housing market effectively not functioning. Not surprisingly, the British Retail Consortium reported that there had been an 83% decline in the number of people going out to shop. Sterling retreated on Monday to trade around 1.2450 against the dollar with the Euro just above 0.8700.
The Swiss franc was again resilient on Friday despite further gains in global equities and a firm tone in global risk appetite. Underlying demand for the Swiss currency remained firm, especially with fears over a sharp downturn in the Euro-zone economy. The Euro was unable to secure any significant recovery from 4-year lows just above the 1.0500 level while the dollar failed to hold intra-day gains to 0.9725 and retreated to 0.9670. The latest data on sight deposits will be released on Monday with markets monitoring whether there has been a change in intervention stance with the Euro just above the 1.0510 level in early Europe.