Low confidence in UK virus efforts
Sterling added to positive overnight moves through US Dollar selling, some short covering and stronger equity markets also added some protection. UK CBI retail sales index declined only slightly to -3, easily beating forecasts of a drop to -12. Retailers are expecting a sharp decline for April however and sectors performance varied; food retailers reported huge gains but clothing and furniture suffered huge losses. The UK government and Bank of England reinforced the message to the banks that they must keep lending to businesses. Overall confidence in the economic outlook remained poor with fears that current UK efforts wouldn’t contain the coronavirus outbreak; especially as new cases increased sharply.
Starting out with highs above 1.1950 against the Dollar, Sterling slid below 1.1700 but as equity markets recovered secured fresh support and returned to near the 1.1900 mark just before midnight. Sterling kicks off near 1.0870 on the Euro and retail sales edged lower for February. The Bank of England’s monetary policy today could provide another white knuckle ride for Sterling investors, with some speculation the UK could match the US with open-ended Quantitative Easing, already standing at £645Bn.
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 the Euro back below 1.0800. There were, however, fresh dollar losses towards the European close as underlying funding stresses remained lower. The Euro 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.
March business confidence final report was issued by the German IFO institute, with the headline index declining further to 86.1 from the flash reading of 87.7 and a substantial decline from 96.0 for February. The sharpest monthly decline recorded and the weakest reading since June 2009. There was a further decline in the current conditions index and a slightly larger retreat in the expectations component. According to sources, the ECB is broadly in favour of seeking financial assistance, via the route of Outright Monetary Transactions (OMT) if needed, although doing so could lead to a risk of legal action.
As of writing, the Euro has moved above the 1.0920 level against the Dollar as we begin Thursday’s trading session with an element of nervousness circulating over the weekly jobless data due for release around lunchtime today.
Data to watch
07:00 – GBP – Retail Sales
12:00 – GBP – MPC Official Bank Rate Votes
12:00 – GBP – Monetary Policy Summary
12:00 – GBP – Official Bank Rate
12:30 – USD – Unemployment Claims
12:30 – USD – Final GDP
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