Risk appetite held firm, although volatility was a key feature as the sharp rise in US coronavirus cases increased nerves.

Risk appetite held firm on Wednesday, although volatility was a key feature as the sharp rise in US coronavirus cases increased nerves.

Currency-market volatility also increased during the day. The US Senate approved the $2.0trn support Bill with a House vote likely on Friday.

The dollar briefly regained ground in early US trading before losing ground again as funding pressures eased and US economic fears increased with EUR/USD above 1.0900. There was very choppy Sterling trading during the day with little overall net change as unease over the UK outbreak increased.

The German IFO institute issued its final report for March business confidence. The headline index declined further to 86.1 from the flash reading of 87.7 and a substantial decline from 96.0 for February. This was the sharpest monthly decline on record and the weakest reading since June 2009. There was a further decline in the current conditions index and a slightly larger retreat in the expectation’s component.

According to sources, the ECB is broadly in favour of Outright Monetary Transactions (OMT) if needed, although there would be the risk of fresh legal action. The German lower house suspended the debt brake and approved a EUR156bn supplementary budget to support the economy.

US durable goods orders increased 1.2% for February, slightly above consensus forecasts, although underlying orders declined 0.6% with little impact.

The latest data continued to register a sharp increase in the total number of US coronavirus cases a jump of over 10,000 on the day while the overall death toll increased to 737 from 544. The dollar dipped lower in early Europe before regaining ground with EUR/USD back below 1.0800.

There were, however, fresh dollar losses towards the European close as underlying funding stresses remained lower. EUR/USD initially advanced to near 1.0850 as volatility remained high with extended gains to 1.0880 towards the New York close as the US currency retreated further from 3-year highs. Choppy trading will inevitably continue in the short term.

EUR/USD moved above 1.0900 on Thursday with an important element of nervousness over the jobless claims data due for release at the New York open with expectations of a potential surge to over 1.5 million. German consumer confidence declined sharply for March.

There were increased concerns over coronavirus developments in Japan with reports of a jump in cases in Tokyo and an instruction for residents to stay at home over the weekend. Equities declined ahead of the New York open with S&P 500 futures dipping into negative territory in jittery markets. There was, however, renewed support for equities ahead of the European close as risk appetite strengthened again. The yen lost ground on the crosses and USD/JPY strengthened to above 111.50. Wider US currency losses triggered a limited retracement later in US trading.

There were delays to the US fiscal support package due to concerns over drafting errors, but the $2.0trn Bill was approved in the Senate after the New York close. A vote is now scheduled in the House on Friday with Trump expected to sign the Bill immediately after the vote. US equity futures declined amid fears over a further sharp increase in US cases.

The dollar lost some ground, although concerns over the Japanese outlook also increased amid fears over a surge in Tokyo cases and potential lockdown in the city. With a more defensive risk tone and wider US losses, USD/JPY declined to just below 110.50.

Sterling continued to gain ground in early Europe on Wednesday with an element of short covering while stronger equity markets also provide protection. The UK CBI retail sales index declined only slightly to -3 for March from 1 the previous month and above consensus forecasts of -12. Retailers are expecting a sharp decline for April and there was inevitably huge divergence between sectors. Food retailers reported a huge gain in sales while there were heavy losses for clothing and furniture.

The government and Bank of England reinforced the message to the commercial banks that must keep lending to businesses to support the economy.

Overall confidence in the outlook remained weak with fears that the UK response would not be enough to contain the coronavirus outbreak while the number of new cases also increased sharply. From highs above 1.1950, GBP/USD declined to lows below 1.1700 in very volatile trading.

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