Trade talk aims to be published
Sterling took a knock before the US starting trading principally on disappointment at slipping below the 1.3000 mark against the Dollar. Also some month end Euro buying against Sterling weighted. Doubts that Rishi Sunak’s March budget would herald substantial government spending increase also soured Sterling sentiment and there were no economic releases to distract.
Michel Barnier stated that the UK could benefit from super-preferential access to EU markets if strong “fair competition” guarantees were agreed. Fragile risk appetite continued to weigh on the Pound and the Euro strengthened to 1.1855, whilst the 1.2900 area against the Dollar was tested before a recovery to near 1.2935 this morning. We await publication of the UK’s goals for EU trade talks at some point today.
There were no significant data releases during the day with markets braced for the Chinese PMI data after the market close on Friday and the important US releases next week.
Former Federal Reserve (Fed) Chair Yellen stated that coronavirus could push the US economy into recession. The dollar secured net gains against commodity currencies, but the Euro edged higher to the 1.0890 area after the European close and settled close to daily highs as dollar doubts persisted.
There was a renewed shift in interest rate futures on Thursday as markets priced in a 45% chance of a March Federal Reserve rate cut. The US currency edged lower with the Euro edged to 10-day highs above the 1.0900 level.
ECB President Lagarde stated that fiscal measures intended to support the economy are welcomed, particularly in the current situation. There were still signs of important divisions over budget policies within the German coalition, but the Finance Ministry stated that it was considering suspending strict rules on the debt-financing limit whilst expectations of a shift in the Euro-zone fiscal stance provided an element of Euro support. There was further choppy trading in German bunds, although yields ended little changed on the day and yield spreads narrowed slightly relative to US bonds which supported the Euro. Ratings agency Moody’s stated that the coronavirus is weighing on Italian growth, but is unlikely to affect the sovereign credit profile. Markets overall are still unsettled by the coronavirus outbreak which maintains unease over Euro-zone trends.
As of writing, the Euro trades at 1.0925 against the Dollar.
Data to watch
13:30 – USD – Core Durable Goods Orders
13:30 – USD – Durable Goods Orders
13:30 – USD – Prelim GDP
15:00 – USD – Pending Home Sales