EUR / USD
The German ZEW investor confidence data was mixed with sharp diverge between the components. The current conditions index declined very sharply to -91.5 from -43.1 previously and well below consensus forecasts of around 71.0. There was, however, a sharp recovery in the expectations index to 28.2 from -49.5 previously and well above consensus forecasts. The Euro-zone expectations index also strengthened to 25.2 from -49.5 previously.
The Euro was hampered by reports that the ECB’s new bond-buying programme could run out of funds by October given the very heavy supply of bonds over the next few months. Ranges overall were relatively narrow, although the Euro drifted lower into the New York open before making notable gains towards the European close.
The US Philadelphia Fed non-manufacturing index plunged to a record low of -96.4 for April from -35.1 the previous month. New orders also declined very sharply and the sales index plunged with no respondents reporting an increase on the month. Employment and price components both declined on the month and, in contrast to manufacturing, respondents also expected conditions to be weaker on a 6-month view.
The dollar held a firm tone with gains to a 2-week high, especially when oil prices collapsed once again, although the Euro was able to demonstrate some resilience. There was little change on Wednesday with the dollar holding a firm tone as caution prevailed with markets also monitoring developments ahead of Thursday’s important Eurogroup meeting. The Euro consolidated around 1.0850 in early Europe with the dollar still attracting an element defensive demand from severe stresses in oil markets while commodity currencies remained fragile. Volatility in the pair was low given sharp market moves elsewhere.
The Bank of Japan warned over potential financial system risks due to the coronavirus, although there was little overall market reaction. US equity futures remained in negative territory ahead of the New York open. The Japanese yen continued to gain an element of defensive support amid a more cautious tone surrounding risk appetite as oil prices declined extremely sharply and the dollar dipped to lows just below 107.30.
The yen lost some ground later in the New York session, although the dollar was held below 108.00. Markets were continuing to monitor progress toward a fresh fiscal stimulus with the Senate passing a $500bn support package for small businesses. There was further unease over friction between the US Administration and state Governors, especially with a partisan approach by President Trump which could undermine coronavirus containment efforts.
There were reports that the Bank of Japan is considering a further downgrading of the economic assessment, although trends in risk appetite tended to dominate. Overall sentiment remained fragile with a fresh slide in oil prices triggering a further retreat in equity markets and the dollar settled around 107.60.
There was little impact from the UK labour-market data given that the data was historic in nature. The evidence of gradual deterioration ahead of the coronavirus crisis was, however, a limited negative factor for the UK currency, especially with average earnings growth slowing to 2.8% from 3.1% previously.
There was some evidence of strains in money markets with demand for Sterling funds at a two-week high in the latest auction.
Bank of England chief economist Haldane stated that the first-half GDP figures would be pretty ugly and, although this was hardly a surprise, the comments contributed to negative underlying sentiment. Sterling was also undermined by fresh deterioration in risk appetite, especially with oil prices declining sharply. The Euro advanced to the 0.8800 area at the New York open with the UK currency sliding to 2-week lows near 1.2250 against the dollar.
Rallies faded again on Wednesday as risk sentiment remained fragile. The latest inflation data recorded a decline in the headline rate to 1.5% from 1.7% which was in line with consensus forecasts. The impact was marginal with Sterling close to 1.2300 against the dollar as risk appetite remained fragile.
The renewed weakness in global equity markets and vulnerability in risk appetite continued to underpin the Swiss franc in Europe on Tuesday. The Euro was, however, able to hold above the 1.0500 level with expectations that the National Bank was persistently intervening to curb franc appreciation. The Euro settled around 1.0520 with the dollar peaking near 0.9725 before fading slightly. There was little change on Wednesday with the franc maintaining a firm tone as risk appetite remained fragile. Markets will be monitoring Euro-zone yield spreads during the day and any increase would tend to support the Swiss currency.