UK confidence continues to deteriorate
Confidence in the UK outlook continued to deteriorate and reports of widespread flouting of the new social distancing recommendations, there was increased speculation that the government would be forced to issue even more draconian measures and the the City would face significant disruption. Sterling peaked near 1.1710 against the Dollar before the UK market opened but after yet another bumpy ride, ended it in the red around 1.1530. The gains in the currency pair are mainly driven by broad-based US dollar weakness, in response to the Fed’s unlimited QE announcement. Sterling fared slightly better against the Euro, starting out at 1.0882 at the open, before finishing at 1.0685.
The immediate focus now shifts towards today’s UK Manufacturing and Services PMI releases, forecast at 45 from 51.7 previously. The Services PMI is also expected at 45 down from 53.2 in February. Missing the forecasts will sour Sterling sentiment.
At the New York open, the Federal Reserve (Fed) announced another major package of measures to help protect the economy and ease funding pressures. The central bank launched a very aggressive increase in its bond purchases with expectations that it will buy $75bn in Treasuries and $50bn in Mortgage-backed securities every day this week. There were further technical measures to bolster credit with the central bank vastly increasing its role as lender of last resort.
The dollar did lose huge amounts of ground following the announcement with the Euro moving above the 1.1800 level. As has been the case with other Fed measures, however, the impact was short-lived with the US currency securing fresh gains during New York trading as the demand for cash remained strong.
In its monthly report, the Bundesbank stated that a German recession is unavoidable with recent surveys suggesting that German companies are now suffering significantly. The RKI institute stated that there were some signs that the exponential upward curve in German coronavirus cases was flattening and the rate of new infections in Italy also slowed slightly, but markets remained fearful over the impact as the overall number of European cases continued to increase sharply.
According to the flash data, Euro-zone consumer confidence declined to -11.6 in March from -6.6 previously, although this was stronger than consensus forecasts. As of writing the Euro trades above the 1.0835 against its Dollar counterpart.
Data To Watch
08:15 – EUR – French Flash Services PMI
08:15 – EUR – French Flash Manufacturing PMI
08:30 – EUR – German Flash Manufacturing PMI
08:30 – EUR – German Flash Services PMI
09:00 – GBP – Flash Manufacturing PMI
09:00 – GBP – Flash Services PMI
13:45 – USD – Flash Manufacturing PMI
13:45 – USD – Flash Services PMI
14:00 – USD – Richmond Manufacturing Index
All Day – All Currencies – G7 Meetings