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Euro-zone data remained very weak with Italian industrial production declining 28.4% for March to give a year-on-year decline of 29.3%.

German Chancellor Merkel was reported as saying that the German Constitutional Court ruling had great importance, reinforcing concerns over a potential rift between Germany and the EU, although Merkel also commented that the situation was solvable. Underlying unease over Italian bond markets was also a significant factor in undermining potential support, especially given long-term damage to the economy.

There were also concerns over the German coronavirus infection rate with reports that the R rate had increased to 1.13 over the weekend. A sustained rate above 1.0 would trigger a sharp in cases over the next few weeks and potentially trigger a reversal of lockdown easing measures.

The dollar was able to resist further selling pressure with a return of defensive demand for the US currency and commodity currencies also retreated sharply. With wider dollar strength and gains to 2-week gains for the dollar index, the Euro weakened to near 1.0800 against the US currency.

Fed Governor Quarles stated that market strains had eased after Fed action, but that more may be required of the central bank before the crisis is over. Chicago Fed President Evans stated that negative interest rates are unlikely to be used as a tool in the US while the central bank is prepared to do everything it can to support employment. Markets will be waiting for further clarity from Fed Chair Powell in a public appearance scheduled for Wednesday.

The dollar maintained a firmer tone on Tuesday as defensive demand increased slightly and the Euro was trapped close to the 1.0800 level.


Chinese money supply growth strengthened to 11.1% in the year to April from 10.1% previously while new loans declined to CNY1,700bn from CNY2,850bn previously, although this was above consensus forecasts. There were further expectations that the Chinese central bank would take additional measures to support demand.

Overall risk appetite remained fragile, especially after a fresh increase in South Korean coronavirus cases and equity markets lost ground. The Japanese yen, however, weakened sharply during the day and failed to gain safe-haven support. There was a significant reversal in US yields with the 2-year yield moving to near 0.18% from a record low of close to 0.10% late last week. The dollar advanced to highs around 107.70 at the European close with the Euro advancing to near 116.50.

Risk appetite remained more fragile on Tuesday with sentiment undermined by China’s decision to impose import bans on meat from four Australian plants. There were also concerns that the phase-1 US-China trade deal would be re-opened and concerns that there would be a fresh spike in coronavirus cases. Equity markets lost ground and the dollar retreated to the 107.40 area as the yen regained some territory on the crosses.


There were reports of UK Cabinet divisions over the government’s latest coronavirus strategy, reinforcing concerns over the effectiveness of government policy. In particular, there were concerns over the potential move to quarantine travellers arriving into the UK from overseas, especially given a negative impact on the economy.

Sterling came under significant pressure ahead of the New York open with a slide to lows just below 1.2300 against the dollar.

A weaker tone in global risk appetite was also an important negative factor for the UK currency as the Euro strengthened to highs just above 0.8800 before correction to 0.8770 as underlying confidence in the Euro-zone economy also remained fragile which limited potential UK selling.

The UK currency found an element of support as equities recovered ground, but domestic concerns persisted, especially with Bank of England Haldane issuing a warning over the medium-term recovery profile. Haldane commented that the economy would be scarred for years due to increasing corporate debts and household fears over job prospects. With risk appetite remaining more fragile, Sterling was unable to gain significant support and traded around 1.2320 on Tuesday.


Swiss sight deposits increased to CHF669.1bn in the latest week from CHF663.8bn the previous week. This was a slower rate of increase than seen in the previous week, but still indicated substantial National Bank intervention to curb potential franc appreciation. The Euro was unable to make headway despite persistent intervention with a retreat to near 1.0510 while the dollar gains were held to around 0.9730. The Swiss franc gained fresh support from a dip in global risk appetite and there were also fears that the National Bank could suddenly abandon intervention. The Euro traded only marginally higher on Tuesday as caution prevailed.



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