Sterling was resilient after the further Bank of England rate cut.
After some relief, the dollar surged again later Thursday as pressure for global liquidation continued with very high volatility still a key feature.
The dollar strengthened to fresh 3-year highs before a fresh reversal on Friday as efforts to boost liquidity had a greater impact and dollar demand eased. EUR/USD dipped to 3-year lows near 1.0650 before a recovery to 1.0750.
Global equities made tentative net gains as central banks and governments continued to take aggressive action while selling in bonds eased. Volatility in commodity currencies remained very high with a strong net recovery on Friday.
Sterling was resilient after the further Bank of England rate cut and a wider risk boost triggered a recovery on Friday as GBP/USD recovered from fresh 35-year lows near 1.1450. The Swiss National Bank warned more forcefully over the strong franc.
French President Macron stated that the current lockdown period was likely to be extended and Italy confirmed that school closures were likely to extend beyond April 3rd. There were reports that the German government wanted to break the ban on issuing new bonds which would expand fiscal policy. The impact of the increased ECB bond buying was offset to some extent by divisions with the governing committee, but Italian bond market stresses eased with a sharp decline in yields.
Overall, the dollar maintained a very strong tone and EUR/USD declined to 35-month lows below 1.0750 ahead of the New York open.
US jobless claims increased to 281,000 in the latest week from 211,000 previously which was well above consensus forecasts and the highest reading since September 2017. The Philadelphia Fed manufacturing survey declined to -12.7 for March from 36.7 previously, sharpest downturn on record and lowest figure since July 2012. New orders declined sharply while delivery times slowed and employment increased slightly. Companies remained optimistic over the outlook, but overall market expectations of a downturn intensified.
Dollar buying eased to some extent in early New York as commodity currencies rallied, but there was a further surge towards the European close. Although central banks increased liquidity injections, there was still strong dollar demand to raise cash. On a trade-weighted basis, it strengthened to fresh 3-year highs while EUR/USD declined to 3-year lows near 1.0650. The US currency corrected on Friday and EUR/USD was near 1.0750 with markets braced for further high volatility ahead of the weekend. Further position adjustment and liquidity issues will be inevitable during the session.
Treasuries regained some ground during Thursday with US yields correcting from very sharp gains the previous day and USD/JPY initially hit resistance on approach to the 110.00 area. A firmer tone in equities and wider US currency gains triggered fresh and powerful US currency gains in New York with fresh 3-week USD/JPY highs around 111.35 as yen demand remained subdued.
There was further speculation that the Treasury would order currency intervention to weaken the US dollar, but no comments from G7 on market volatility.
Boston Fed Rosengren stated that the US economy will suffer a significant shock with higher unemployment, but expects markets to stabilise in the next week or two. Treasury Secretary Mnuchin stated that he aimed to get the next coronavirus relief bill signed on Monday.
Equity markets secured limited net gains on Friday, but US concerns increased after the California Governor announced that all residents should stay at home and avoid essential travel. Very choppy trading continued with USD/JPY dipping to just below 110.00 before settling close to this level with the dollar overall potentially recording the strongest weekly gain since 2008.
Sterling remained under pressure in early Europe on Thursday before attempting to stabilise after severe declines this week. In an unscheduled policy decision, the Bank of England (BoE) cut interest rates again to a record low of 0.10% from 0.25%. The BoE also announced an expansion of its quantitative easing bond purchase programme. Total purchases of government and corporate bonds will be increased by a further £200bn to £645bn.
The majority of these purchases will be for government bonds and completed as soon as operationally possible. The bank will also enlarge the current support scheme and provide support to corporate cash-flows. In its statement, the BoE commented that the Covid-19 coronavirus shock will result in a shock that is sharp and large while UK and global financial conditions had tightened. Governor Bailey stated that the bank had options to take further action if necessary, but remained opposed to negative rates. He also stated that a big increase in budget deficits was coming.
|07:00||EUR German PPI (Y/Y)(FEB)||0.20%||0.20%|
|07:00||EUR German PPI (M/M)(FEB)||-0.10%||0.80%|
|08:30||GBP Consumer Inflation Expectations (Q/Q)||-||3.10%|
|09:30||GBP Public Sector Net Borrowing(FEB)||-||-10.54B|
|12:30||CAD Retail Sales (M/M)(JAN)||0.10%||1.10%|
|12:30||CAD Retail Sales Ex Autos (M/M)(JAN)||0.40%||0.50%|
|14:00||USD Existing Home Sales(FEB)||5.50M||5.46M|
|14:00||USD Existing Home Sales Change(FEB)||-1.80%||-1.30%|