Risk appetite remained firm for most of Tuesday, but disappointing coronavirus data triggered a more cautious tone later in the day.

US equity markets retreated sharply in late trading to register a net loss with a mixed tone on Wednesday. The dollar lost ground amid firm risk appetite and ample liquidity before a tentative recovery when equities faded, and defensive demand returned

EUR/USD failed to hold above the 1.0900 level and then dipped again on Wednesday following reports that the Eurogroup had failed to agree a support package. Sterling was again broadly resilient with support on dips despite political uncertainty.

The US NFIB small-business confidence index declined to 96.4 for March from 104.5 previously, the sharpest monthly decline in the survey’s history and the weakest reading since October 2016 as the coronavirus impact started to bite. The survey also reported that companies faced difficulties in submitting loan applications which will increase the risk of sustained economic damage. The IBD consumer confidence index declined to 47.8 from 53.9 previously.

Ahead of the key Eurogroup meeting, finance ministers were aiming to agree a EUR500bn support package to underpin the Euro-zone economy and help finance a recovery. There was, however, no sign that the German and Dutch governments would agree to issue joint or Coronabonds.

Overall US dollar demand remained weaker as risk appetite strengthened and EUR/USD advanced strongly to highs around 1.0925 in early New York trading before fading slightly. A sharp rise in US coronavirus-related deaths and mixed data from Europe unsettled confidence.

The Eurogroup meeting continued late into the night and a statement is scheduled early in Wednesday’s European session. Source reports indicated that work towards an ambitious response had not yet been completed. The resignation of the European Research Council President reinforced unease. The dollar regained an element of support and the Euro retreated to the 1.0870 area with further losses in early Europe to below 1.0850 following reports that the Eurogroup had failed to reach a deal over a coronavirus response.

Ahead of the New York open, the Japanese government confirmed that it had declared a state of emergency in Tokyo, Osaka and five other prefectures which limited potential yen support. Prime Minister Abe was, however, keen to emphasise that it was not like lockdowns seen overseas with the government aiming for voluntary actions to minimise transmission risks while keeping the economy running. This will inevitably be a very difficult balancing act.

Global equities continued to make headway in Europe as risk appetite remained robust. US Treasury Secretary Mnuchin stated that the Administration is looking at areas of the economy which can be opened and announced further support for small businesses. Efficient delivery of support measures will, however, be crucial in determining whether the economy can be protected. USD/JPY failed to hold above 109.00 as US equity markets retreated sharply from highs.

Risk appetite remained more fragile on Wednesday with markets monitoring developments in China as Wuhan emerges from lockdown for the first time in close to 10 weeks. US equity futures edged higher and USD/JPY tested the 109.00 area after finding support close to 108.50.
Sterling
The UK currency was unsettled briefly ahead of the New York open following reports that Cabinet Minister Gove was self-isolating due to a family member displaying symptoms. Although he had not displayed symptoms himself, this will further complicate the running of government at a critical time.

Reports on the Prime Minister indicated that he was still not using a ventilator and had not been diagnosed with pneumonia which offered some support, although markets remained wary, especially after reports regarding his condition on Monday proved inaccurate.

The UK reported a further 786 deaths on Tuesday, the highest figure so far, although medical officers were still confident that the outbreak was not accelerating.

Sterling was supported by a stronger global risk tone and strong demand at the latest gilt auctions also underpinned market sentiment. GBP/USD advanced to highs around 1.2385 before fading while GBP/EUR made limited net gains to 1.1335.

There were further concerns over economic damage with reports that only 1% of companies had successfully accessed financial help from the government. GBP/USD dipped to 1.2300.

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