The Federal Reserve announced further aggressive measures to support credit and planned a very substantial increase in bond-buying.

The Federal Reserve announced further aggressive measures to support credit and planned a very substantial increase in bond-buying and direct financing to ease market pressures.

The dollar dipped lower after the move, but again rebounded quickly and equity markets continued to lose ground. Sentiment improved in Asia on Tuesday as funding pressures eased, liquidity injections had a larger impact and the US edged close to a substantial fiscal support package.

US equity futures rallied sharply with Asian bourses also making headway. The dollar retreated with EUR/USD back above 1.0800

Sterling remained under pressure as current account fears undermined sentiment with GBP/USD near 35-year lows before a tentative rally.

In its monthly report, the Bundesbank stated that a pronounced 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.

At the New York open, the Federal Reserve 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 ground following the announcement with EUR/USD 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.

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.

The outbreak continued to intensify in the US with New York cases increasing over 5,500 to over 20,000. The dollar was resilient, but EUR/USD closed above 1.0700 as it recovered from 3-year lows. G7 central bank officials and Finance Ministers will hold a conference call on Tuesday with further support measures likely.

The latest PMI business sentiment data for the Euro-zone and US will also be released in Europe with sharp declines expected for the month. As pressures in funding markets eased and liquidity improved following the latest Fed move, the dollar retreated from 3-year highs with EUR/USD above 1.0800 as commodity currencies also rallied.

Global equities lost ground ahead of the New York open, but the yen was unable to derive strong support as liquidity issues continued to support the US currency. US Treasuries also made strong gains following the Fed move with the 10-year yield declining to around 0.75%.

USD/JPY dipped below 110.00 following the Fed move to expand the bond-purchase programme, but quickly regained ground to trade above the 111.00 level.

Negotiations continued during the day with Congress attempting to find agreement on a new fiscal support bill. There were reports after the New York close that the bill could equate to $2.5trn and that differences were narrowing within the Senate. Expectations that a vote could be held on Tuesday helped underpin risk appetite as swap spreads narrowed.

Japan’s preliminary March PMI manufacturing index declined to 44.8 from 47.8 previously with a slide in services to 32.7 from 46.8. US equity futures made sharp gains amid signs that market pressures were easing and USD/JPY retreated to near 110.00 before settling around 110.50.

Overall confidence in the UK outlook continued to deteriorate during the day on domestic and international factors. After weekend 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.

The latest household survey reported a decline in job security to 8-year lows with the data collected between March 12-17th before the latest restrictions took effect.

After early gains reversed, GBP/USD retreated steadily with lows below 1.1500 in US trading. EUR/GBP also posted sharp gains to the 0.9350 area. After the US close, Prime Minister Johnson announced a further crackdown on people leaving homes in order to minimise the spread of coronavirus with all non-essential retail outlets ordered to close.

The UK currency edged higher on hopes that the measures would lessen the overall death toll, although overall sentiment inevitably remained fragile as the economy will inevitably decline further.

Economic Calendar

08:15Markit Mfg PMI(MAR)-49.8
08:15Markit Serv PMI(MAR)-52.5
08:30EUR German PMI Composite(MAR)-50.7
08:30EUR German Manufacturing PMI (M/M)(MAR)44.848
08:30EUR German PMI Services(MAR)53.852.5
09:00Euro-Zone PMI Manufacturing(MAR)47.549.2
09:00Euro-Zone PMI Services(MAR)52.252.6
09:00Euro-Zone PMI Composite(MAR)5151.6
09:30GBP PMI Services(MAR)-53
09:30GBP PMI Manufacturing-51.7
13:45USD Manufacturing PMI(MAR)51.550.7
13:45USD Markit PMI Composite-49.6
14:00USD New Home Sales(FEB)750M764M
14:00USD New Home Sales Change(FEB)3.50%7.90%
14:45USD Markit Services PMI(MAR)5349.4
21:45NZD Trade Balance (M/M)(FEB)--340M
21:45NZD Trade Balance (Y/Y)(FEB)--3.870M

*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.