UK cautious in easing lockdown
Sterling fell against its peers as weaker global risk appetite sapped confidence in the global economy again. The Euro pushed to just below 1.1450 and the Dollar rose to 1.2420 after the European market had closed. Ben Broadbent, Bank of England Deputy Governor, stated that the coronavirus crisis is exceptional and the impact is “very, very material”. He added that the central bank stimulus is designed so that strong demand does not outstrip supply.
A spokesman for the Prime Minister announced that avoiding a second coronavirus peak is of paramount importance and the government will be very cautious in easing lockdown restrictions. If the UK reacts more slowly than Europe, Sterling could lose some ground as the UK economy would be behind the curve. Sterling recovered slightly late on as equities corrected from their worst levels, but risk aversion has hit Sterling again this morning.
UK jobless claimant data recorded an increase of only 12,100 for March compared with expectations of 170,000, but the data was not representative of actual developments. Sterling appears to be hemmed in near 1.2400 against the Dollar with the Euro around 1.1450 as risk appetite remained fragile.
The US Chicago Federal Reserve (Fed) National Activity index declined very sharply to -4.19 for March from 0.06 in February and the third weakest reading in history with only the two readings in 1975 and 2009 below this level. Markets were monitoring potential US lockdown developments.
The US dollar is on the up amid a souring market mood. The rout in oil prices – which sent WTI to a historic negative price yesterday – stands out. Petrol futures are now calculated using the June contract and are back above $20, but it may drop again and send investors to the safety of the greenback. Demand for the black gold has plunged amid the lockdowns.
The US currency gained fresh support and the Euro retreated to test below 1.0850 before regaining some ground. As commodity currencies were subjected to renewed selling and risk appetite remained fragile, the dollar gained fresh support early this morning ahead of German confidence data.
The Euro-zone current account surplus increased to 40bn for January from 32bn the previous year with a 12-month surplus of 339bn of 2.8% of GDP. The strong current account position will provide important underlying support for the common currency, even more so with the US running a substantial deficit.
In its latest monthly report, the German Bundesbank stated a quick and robust economic recovery was unlikely with substantial restrictions remaining until a medical solution such as a vaccination is available. German Chancellor Merkel confirmed the country shouldn’t move too quickly in easing the lockdown. Tension and market volatility could also increase ahead of Thursday’s Eurogroup meeting, potentially unsettling the currency.
As of writing, the Euro trades around 1.0840 level against the Dollar.
Data to watch
06:00 – GBP – Claimant Count Change
09:00 – EUR – German ZEW Economic Sentiment