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Euro-zone data illustrated the pressure on economies as the coronavirus crisis impact intensified. German retail sales declined 5.6% for March with a 2.8% annual decline. The labour-market data was more dramatic with a 373,000 increase in unemployment for April as lockdown measures had a greater impact.

Euro-zone GDP declined 3.8% for the first quarter of 2020 which was the deepest contraction on record, although close to expectations. Italian data recorded a 4.7% GDP decline for the quarter as Italy entered lockdown on March 10th.  Inevitably, second-quarter data will be much weaker as lockdown measures take full effect.

The Euro held a firm tone but was unable to test the 1.0900 level ahead of the New York open as caution prevailed.

The ECB made no changes to the interest rate at the latest policy meeting and there was no increase in the current asset-purchase programme. Lagarde warned that second-quarter GDP was likely to contract 5-12% amid extremely high uncertainty. The bank introduced new facilities to boost lending and lowered the cost of existing lending programmes. ECB President Lagarde emphasised flexibility and reiterated that the central bank was prepared to take further action and she also pressed for Eurogroup governments to take more aggressive fiscal action. There was some disappointment that the bond-buying programme was not extended.

The Euro initially lost ground during the press conference with a decline to 1.0835 against the dollar. There was, however, choppy trading associated with the month-end period and the dollar came under renewed selling pressure into the London fix. In this environment, the Euro rallied strongly to highs above 1.0950. The dollar regained some ground on Friday, although the Euro was able to hold steady around the 1.0950 area with many European markets on holiday on Friday.


The dollar found some support below 106.50 ahead of the New York open with the Japanese yen unable to secure further gains. US jobless claims declined to 3.84mn from a revised 4.44mn the previous week, although this was above consensus expectations of 3.50mn. Personal income declined 2.0% for March with a slide of 7.5% for spending. The Congressional Budget Office estimated that the US budget deficit for the current fiscal year could increase to $3.7trn and 17.9% of GDP before a decline to 9.8% next year while White House adviser Hackett stated that the April jobs report could show an unemployment rate of around 19%. The Federal Reserve expanded the scope of its Main Street loan programme and US 2-year yields declined to 9-year lows.

The yen declined sharply towards the European close with month-end positioning a significant factor. The dollar made net gains to a peak around 107.40 despite losses elsewhere while the Euro moved sharply higher. Risk appetite was more fragile in Asia on Friday, especially with President Trump increasing his attack on China and threatening new tariffs in retaliation for the coronavirus outbreak. US equities moved significantly lower as confidence in the growth outlook declined again. Nikkei forecast that Japan’s economy would contract an annualised 22% for the second quarter with the dollar holding just above 107.00 as yen demand remained weaker.


Sterling made net gains ahead of Thursday’s New York open with a move to above 1.2500 against the US dollar while the Euro retreated to below the 0.8700 level.

There was volatile trading due to month-end positioning with the UK currency making further gains into the London fix, primarily at the expense of the dollar. Sterling strengthened sharply to highs above 1.2600 as the Euro was held below 0.8700.

Prime Minister Johnson took the daily briefing on Thursday and stated that for the first time that the UK was past the peak in this outbreak. He also stated that plans to ease restrictions would be outlined next week. The rhetoric proved an element of Sterling support, although there were still concerns that there would be a delay in easing lockdown measures. The need to maintain social distancing measures will also make it difficult to revive economic activity, maintaining pressure on the budget deficit. The UK currency lost some ground on Friday with a retreat to the 1.2560 area against the dollar with the Euro back above the 0.8700 level.


The Swiss KOF business confidence index declined very sharply to 63.5 for April from 91.7 the previous month, the sharpest monthly decline on record, although the index held marginally above record lows. The Euro overall was unable to make any headway, failing to re-test the 1.0600 area, and the dollar retreated sharply to lows below 0.9650 before a limited recovery as volatility increased. The more fragile risk conditions were a significant factor on Friday. The franc gained renewed support with the Euro retreating towards 1.0550 while the dollar was held below the 0.9650 level.



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