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The Euro-zone current account surplus increased to EUR40bn for January from EUR32bn the previous year with a 12-month surplus of EUR339bn of 2.8% of GDP. The strong current account position will provide important underlying structural support for the Euro, especially with the US running a substantial deficit.
In its latest monthly report, the German Bundesbank stated that a quick and robust economic recovery was unlikely. According to the bank substantial restrictions are likely to remain until a medical solution such as vaccination is available.
German Chancellor Merkel stated that the country shouldn’t move too quickly in easing the lockdown and the Euro drifted to test below 1.0850 against the dollar.
According to sources the Spanish government will propose a EUR1.5trn fund to aid coronavirus recovery with funds raised by debt issued through the EU. Tensions will increase ahead of Thursday’s Eurogroup meeting and potentially unsettle the Euro.
The US Chicago Federal Reserve National Activity index declined very sharply to -4.19 for March from 0.06 in February and the third weakest reading in history with only the two readings in 1975 and 2009 below this level. Markets were monitoring potential US lockdown developments.
The US currency gained fresh support and the Euro retreated to test below 1.0850 before regaining some ground. As commodity currencies were subjected to renewed selling and risk appetite remained fragile, the dollar gained fresh support with the Euro near 1.0840 in early Europe on Tuesday ahead of German confidence data.


US equity futures dipped further ahead of the New York open which provided an element of defensive yen support and the dollar was unable to challenge the 108.00 area. The US currency also drifted weaker late in Europe while the Euro edged back above the 117.00 level. The Japanese yen gained fresh support from the unprecedented slide in oil prices into negative territory and the dollar was unable to make any headway with a retreat to the 107.50 area. There were further fears over the impact on US oil companies and potential stresses within the corporate debt sector.
There was a further debate within Congress over another $450bn fiscal support package and House of Representatives majority leader Hoyer stated that it could vote on Thursday. Risk appetite remained more fragile in Asia on Tuesday amid fears over global demand conditions. Equity markets moved lower following reports that North Korean leader Kim was gravely ill after receiving treatment for a heart condition. Unease over the renewed threat of regional geo-political tensions further eroded market confidence with the dollar just below the 107.50 level in early Europe as the yen maintained a solid tone.


Bank of England Deputy Governor Broadbent stated that the coronavirus crisis is quite unlike a normal cyclical downturn and that the virus hit is very, very material. Broadbent also commented that the central bank stimulus is designed so that the powerful demand effects do not outstrip supply.
According to a spokesman for Prime Minister Johnson, the principal concern is to avoid a second coronavirus peak and the government will, therefore, be very cautious in easing lockdown restrictions. If the UK reacts more slowly than Europe, Sterling could lose some ground.
Sterling lost ground in early Europe, primarily under the influence of weaker global risk appetite as confidence in the global economy remained weak. The Euro advanced to the 0.8740 area while the UK currency dipped to lows just below 1.2420 late in US trading.
There was a tentative recovery later in Europe as equities recovered from their worst levels, but risk aversion hit Sterling again in early Europe on Tuesday. UK labour market data recorded that the claimant count had only increased 12,100 for March compared with expectations of 170,000, but the data was not representative of actual developments. Sterling was pinned close to 1.2400 against the dollar with the Euro around 0.8735 as risk appetite remained fragile.


The latest data on sight deposits recorded an increase to CHF 637.2bn from CHF634.1bn the previous week. This was a notable slowdown in the rate of increase from the previous two weeks and illustrated that the National Bank had slowed the rate of currency intervention. There were still some expectations that the bank would look to prevent Euro losses through the 1.0500 level. The Euro held above this level on Monday, but was unable to make any significant impression while the dollar hit resistance close to 0.9700. The Swiss currency held firm on Tuesday amid fragile risk appetite with the dollar held just above the 0.9700 level.




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