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In its ruling on Tuesday, the German Constitutional Court stated that the ECB bond-buying programme did not violate the rules on budget deficit financing. It did, however, stated that the German Bundesbank had not provided evidence on whether the bond-buying programme was justified. The Bundesbank would, therefore, have to stop buying bonds in three months’ time unless the ECB provided the evidence to justify the buying. The ruling applied to the regular PSPP programme which started in 2015 and does not apply to the emergency EUR750bn PEPP programme introduced to combat the coronavirus crisis. There was, however, important medium-term uncertainty which undermined Euro confidence, especially with a jump in Italian bond yields, and it dipped sharply to lows at 1.0825 against the dollar.

The EU Commission stated that EU law has primacy over national laws while the ECB reiterated it remained committed to taking necessary action.

The US Markit PMI services-sector index was revised lower to record low of 26.7 from the flash reading of 27.0 with output charges declining sharply. The ISM non-manufacturing index declined to an 11-year low of 41.8 from 52.5, although this was above consensus forecasts of 37.0. There were very sharp declines in business activity and new orders on the month with a sharp dip in employment. The headline index was boosted by a substantial lengthening of supplier delivery times while, in contrast to the PMI data, prices increased on the month. Employment data will be a key focus over the next few days with ADP data on Wednesday.

The overall reaction was limited with commodity currencies securing slight gains. In this environment, the dollar drifted lower with a limited Euro recovery

St Louis Fed President Bullard waded into the wider Euro debate with comments that Euro-zone divisions could impede the crisis response. The Euro remained on the defensive on Wednesday and traded around the 1.0825 area. German factory orders declined 15.6% for March, reinforcing concerns over the outlook.


US equity futures held firm ahead of the New York open, although the dollar was held in a tight range as the yen remain resilient and the Euro declined to near 4-year lows. The Japanese currency continued to resist selling pressure even with gains on Wall Street.

President Trump stated that he had not talked with Chinese President Xi and that China should have informed the US over coronavirus, although the rhetoric was slightly less inflammatory. Markets were waiting for a response from China and underlying tensions remained higher. The Federal Reserve announced that it would extend the deadline for the return of payroll protection loans. The dollar was, however, unable to make headway and dipped lower to test the 106.50 area.

Asian equity markets made limited headway on Wednesday, although Japanese markets remained on holiday. The yen maintained a strong tone with the low level of yields in major economies curbing potential outflows from Japan. The dollar retreated to 6-week lows near 106.25 and the Euro declined to 3-year lows around 115.10.


The final reading for the April PMI services-sector index registered a slight recovery to 13.4 from the flash reading of 12.3, but this was still a record low by a substantial margin with the previous low of 40.1 in November 2008. The composite index declined to 13.8 from 36.0 previously, also a record low. According to the survey, 79% of companies reported a decline in activity for April. There were severe cash-flow constraints and 49% of companies reported a decline in employment while charges declined at the fastest pace in history. The overall reaction was limited with a steep downturn already priced in. The UK currency gained significant support from the German constitutional court ruling and the Euro dipped to test support below the 0.8700 level.

Trading was relatively subdued in New York with the UK currency settling around 1.2450 against the dollar as the Euro regained 0.8700. There were still underlying concerns over coronavirus developments as the UK death toll exceeded that of Italy and the UK currency struggled to gain support from firmer risk appetite. Sterling retreated to near 1.2430 on Wednesday with the Euro holding above 0.8700 ahead of Thursday’s Bank of England policy statement.


Swiss consumer prices declined 0.4% for April compared with consensus forecasts of a 0.1% decline for the month with a year-on-year decline of 1.1% from 0.5% previously. This was the weakest annual rate since February 2016 which will maintain National Bank concerns over the deflation threat. The Swiss franc lost ground during the day amid speculation that deflation fears would maintain bank resistance to franc gains. The Euro advanced to the 1.0540 area with the dollar breaking above 0.9700. There were some reservations whether the intervention would be sustainable, but the franc remained slightly weaker in early Europe on Wednesday.



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