Further volatility expected
Following January’s surplus, the Public Sector Net Borrowing for February was relatively low. However, the first 10 months of the current financial year the UK budget deficit widened to £44.0bn from £39.8bn. That figure will increase exponentially over the next few months as revenue drops and “coronavirus” spending rockets. The UK government warned that social isolation measures could be in place for most of the year.
Even in current times, Friday would count as particularly volatile for Sterling, moving from below 1.1450 to above 1.1900 before slumping back to 1.1600. After the European close Boris Johnson announced the closure of pubs, bars, restaurants and gyms in an effort to curb the spread of the virus, but warned on Sunday night that the Government will tighten restrictions if people fail to follow the social distancing rule of staying at least two metres from each other in public places. Although there was some relief over increased protection, the impact was offset by fears over further economic damage and intense upward pressure on the budget deficit.
Futures market data showed a net long position (bets for the Pound) remained last week, although it’s likely some have been reversed since the data was compiled. Sterling declined in the early hours of this morning before recovering to near 1.1700 on the Dollar and below 1.0900 against the Euro.
The Federal Reserve (Fed), together with other major global central banks continued their efforts to boost global liquidity with an announcement of further swap operations which would be conducted daily rather than weekly. The dollar moved lower after the release, although there was still strong demand for the US currency as underlying money-market stresses remained extremely high.
The state of Ohio recorded a huge increase in the number of initial jobless claims in the latest week which implies a massive increase in the number of national claims when the data is released next week. There were some estimates that national jobless claims could be over 1 million, although processing delays are likely.US existing home sales increased to an annual rate of 5.77mn from 5.42mn the previous month with no significant impact from the releases.
The dollar gained fresh support towards the European close with further notable position adjustment into the weekend.
Euro-zone countries continue to tighten restrictions and expectations of a deep recession continue to increase with contraction inevitable for the first and second quarters. The common currency dipped to fresh lows, just above the 1.0635 figure before a slight correction and a sharp increase in the number of deaths in Italy unsettled market confidence further as additional restrictions on public movement and commercial closures were announced.
The Euro opened lower in Asia today, but unease over Dollar positions increased due to additional travel restrictions which triggered a reversal. As of writing, the Euro is currently trading just above the 1.07.
Data to watch
All Day – All Currencies – G20 Meetings