Sterling Edged lower amid the more defensive tone in equities.

The Canadian dollar retreated sharply as oil prices collapsed with the Norwegian krone also under pressure. Stresses in oil markets contributed to weaker risk appetite with global equities losing ground. Geo-political tensions also increased amid North Korean rumours which contributed to fragile risk.

The dollar was held in narrow ranges but maintained a generally firm tone amid fresh demand on defensive grounds with EUR/USD below 1.0850. The yen and Swiss franc maintained a firm tone amid the weaker risk tone. Sterling edged lower amid the more defensive tone in equities with GBP/USD near 1.2400.

The Euro-zone current account surplus increased to EUR40bn for January from EUR32bn the previous year with a 12-month surplus of EUR339bn of 2.8% of GDP. The strong current account position will provide important underlying structural support for the Euro, especially with the US running a substantial deficit.

In its latest monthly report, the German Bundesbank stated that a quick and robust economic recovery was unlikely. According to the bank, substantial restrictions are likely to remain until a medical solution such as vaccination is available.

German Chancellor Merkel stated that the country shouldn’t move too quickly in easing the lockdown and EUR/USD drifted to test below 1.0850 against the dollar.

According to sources, the Spanish government will propose a EUR1.5trn fund to aid coronavirus recovery with funds raised by debt issued through the EU. Tensions will increase ahead of Thursday’s Eurogroup meeting and potentially unsettle the Euro.

The US Chicago Federal Reserve 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 currency gained fresh support and EUR/USD retreated to test below 1.0850. As commodity currencies were subjected to renewed selling and risk appetite remained fragile, the dollar gained fresh support with EUR/USD near 1.0840 in early Europe on Tuesday ahead of German confidence data.

US equities continued US equity futures dipped further ahead of the New York open which provided an element of defensive yen support and USD/JPY was unable to challenge the 108.00 area. USD/JPY also drifted weaker late in Europe while EUR/JPY edged back above the 117.00 level.

The Japanese yen gained fresh support from the unprecedented slide in oil prices into negative territory and USD/JPY was unable to make any headway with a retreat to the 107.50 area. There were further fears over the impact on US oil companies and potential stresses within the corporate debt sector.

There was a further debate within Congress over another $450bn fiscal support package and House of Representatives majority leader Hoyer stated that it could vote on Thursday. Risk appetite remained more fragile in Asia on Tuesday amid fears over global demand conditions.

Equity markets moved lower following reports that North Korean leader Kim was gravely ill after receiving treatment for a heart condition. Unease over the renewed threat of regional geo-political tensions further eroded market confidence with USD/JPY just below the 107.50 level in early Europe as the yen maintained a solid tone.

Bank of England Deputy Governor Broadbent stated that the coronavirus crisis is quite unlike a normal cyclical downturn and that the virus hit is very, very material. Broadbent also commented that the central bank stimulus is designed so that the powerful demand effects do not outstrip supply.

According to a spokesman for Prime Minister Johnson, the principal concern is to avoid a second coronavirus peak and the government will, therefore, be overly cautious in easing lockdown restrictions. If the UK reacts more slowly than Europe, Sterling could lose some ground.

Sterling lost ground in early Europe, primarily under the influence of weaker global risk appetite as confidence in the global economy remained weak. EUR/USD advanced to the 0.8740 area while GBP/USD dipped to lows just below 1.2420 late in US trading.

There was a tentative recovery later in Europe as equities recovered from their worst levels, but risk aversion hit Sterling again in early Europe on Tuesday. UK labour market data recorded that the claimant count had only increased 12,100 for March compared with expectations of 170,000, but the data was not representative of actual developments.

Economic Calendar

07:00GBP Average Earning Including Bonus(FEB)3.00%3.10%
07:00GBP Claimant Count Change(M/M)(MAR)172.5K5.9K
07:00GBP Unemployment Rate(FEB)3.90%3.90%
10:00German ZEW Survey (Current Situation) (APR)-30-43.1
10:00German ZEW Survey (Economic Sentiment)(M/M)(APR)-26.4-49.5
10:00EUR Euro-Zone ZEW Survey (Economic Sentiment)(APR)--49.5
13:30CAD Retail Sales Ex Autos (M/M)(FEB)0.20%-0.10%
13:30CAD Retail Sales (M/M)(FEB)0.30%0.40%
15:00USD Existing Home Sales(MAR)5.48M5.77M
15:00USD Existing Home Sales Change(MAR)0.70%6.50%

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.