Sterling falls short of 1.2500
Friday was yet another rollercoaster ride for the Pound. The major news of the day was that Boris Johnson and Health Secretary Matt Hancock have now tested positive for Coronavirus. Boris Johnson will lead the government remotely whilst in isolation. Sterling broke above 1.2300 on the Dollar and 1.1175 against the Euro. Wider Dollar weakness allowed the Pound to peak near 1.2480 just before the European market closed.
Futures market data recorded a small decline in long Sterling positions (bets on Pound rising) to 11,000, limiting the potential for a spate of Sterling buying on positive movements. Fitch cut the UK credit rating to AA- from AA with a negative outlook due to a substantial weakening of the fiscal position and economic damage due to the coronavirus outbreak. The report also contained a forecasted GDP decline of close to 4% in 2020 before a recovery in 2021. Sterling dipped back below 1.2400 against a stronger Dollar in the small hours of this morning and the Euros kick off just below 1.1175.
The US core PCE prices index increased 0.2% for February, in line with consensus forecasts with the year-on-year rate at 1.8% from 1.7% previously. Inflation trends will, however, not have a significant impact on monetary policy expectations in the short term. The revised University of Michigan consumer confidence index for March declined to 89.1 from the flash reading of 95.9. The March figure overall was the fourth-largest decline in 50 years and weakest reading for three years.
Dallas Federal Reserve (Fed) President Kaplan stated that small and medium-sized businesses were worried about their survival. Atlanta head Bostic stated that the economy may rebound robustly, but forecasting is tough and US coronavirus developments will be watched closely.
The dollar briefly secured fresh gains into the New York open with the Euro retreating to lows near 1.0950 before a recovery. There were, however, sharp renewed US losses in US trading as the Euro secured further gains. Momentum gathered pace late in the session with the Euro breaking above 1.1100 to highs near 1.1150. Overall, this was the sharpest weekly dollar decline since 2009 with a 3.9% slide as the easing of liquidity pressures continued.
The Federal Reserve announced that the pace of daily bond purchases would be reduced to $60bn per day in April, although this will still be a massive amount.
CFTC data recorded a sharp increase in long Euro positions to over 60,000, the highest level since June 2018.
As coronavirus lockdowns tightened across the world, a prolonged period of uncertainty extended some support to the Dollar against the Euro and helped ease the recent bearish pressure. With the Italian death toll increasing to above 10,000, the Spanish toll increasing sharply and the US cases moving to above 140,000 figure, there is the risk of further volatile trading towards the month’s end on Tuesday.
Developments surrounding the coronavirus saga will continue to play a key role in influencing the pair’s movement and of writing the Euro currently trading at the 1.1070 level with no data releases scheduled for today.