Yesterday morning saw Sterling edged up against its peers as it recovered from being oversold the day before. The much anticipated Bank of England monetary policy meeting produced a wait and see message and no further policy changes were announced. Reports from Bank of England Agents confirmed that activity had nosedived and there will be great concern at reports that banks were tightening loan criteria, defying the Central Bank’s key message; that lending must be sustained. Potential further action from the BoE supported Pound sentiment, although firmer risk appetite and weaker US Dollar had a more immediate and substantial impact.
Sterling registered the largest daily gain for three years against the Dollar, peaking near 1.2150. The move against the Euro peaked around 1.1031. The most immediate Brexit trade talks have been cancelled and Michel Barnier is recovering from Covid 19. The Pound has had a positive start today, reaching highs near 1.2300 against the Dollar before fading, and near 1.1111 against the Euro.
Federal Reserve (Fed) Chair Powell stated that the central bank still has room to take further policy action and that it will not run out of ammunition. According to Powell, the only limit for the Fed is the amount of backstop from the Treasury. He stated that there was nothing fundamentally wrong with the US economy and that it would rebound once the outbreak was brought under control. The dollar maintained a negative tone after Powell’s comments as liquidity pressures also eased.
Markets had been braced for a sharp increase in US jobless claims, but the data still came as a shock. Initial claims jumped to 3.28mn in the latest week from a revised 282,000 previously as companies laid-off workers. This was well above consensus forecasts and a record high by a huge margin as the previous record had been 685,000 in 1982. The claims data reinforced concerns that the economy overall would slide rapidly into recession, especially with further lock-downs in place.
Elsewhere, the Kansas City Fed manufacturing index declined sharply to -18 from 8 previously. Overall, the dollar continued to lose traction during the New York session with the Euro advancing to the 1.1030 area. The US currency continued to retreat this morning as funding pressures eased with the Euro near 1.1050.
German consumer confidence index strongly declined to 2.7 from 8.3 previously, the weakest reading since February 2009, confirming expectations of a dip in spending.
The ECB also announced yesterday that bond purchases under the new EUR750bn programme had begun, but sources duly noted there were no current plans to deploy the Outright Monetary Transactions (OMT) programme with the new bond-buying programme seen as the more effective option. Fears over the European coronavirus developments continued with a sharp increase in the number of cases in Spain, but US developments remained dominant. AS of writing the Euro trades at 1.1030 against the US counterpart.
Posted in Daily Market News on Mar 27 2020