The Fed announced further swap lines to overseas central banks which helped ease funding concerns.

There was choppy trading surrounding the quarter-end on Tuesday with position adjustment a key factor. The Fed announced further swap lines to overseas central banks which helped ease funding concerns and limited US currency support.

There were further losses in Asia as confidence in the global economy deteriorated and Trump warned over a tough period ahead. The dollar strengthened into the New York open before retreating sharply later in the session with EUR/USD back above 1.1000.

Sterling was resilient in choppy trading on Tuesday before losing some territory as European currencies faded on Wednesday. After initial losses, the Canadian dollar gained strongly on Tuesday, but commodity currencies overall lost ground again on Wednesday as risk appetite deteriorated.

German March unemployment increased 1,000 for March compared with consensus forecasts of 23,000, but the total will inevitably increase sharply in the near term. According to the flash data, the Euro-zone CPI inflation rate declined to 0.7% for March from 1.2% previously and below forecasts of 0.8%. The underlying rate declined to 1.0% from 1.2%.  ECB council member Holzmann stated that the decision on Coronabonds is up to governments, but there was no sign of a political breakthrough.

The dollar maintained a strong tone into the New York open with further demand on month-end grounds and EUR/USD declined to lows around 1.0925.

US consumer confidence declined sharply to 120.0 for March from 132.6 the previous month, although this was above consensus forecasts. There was a small decline in the current conditions index with a sharp decline in expectations due to the expected impact of the coronavirus outbreak.

The Chicago PMI manufacturing index declined slightly to 47.8 from 49.0 previously, but this was above consensus forecasts of 44.0. There was a notable decline in new orders and the headline figure was inflated by further delays in supplier deliveries as overall confidence in the outlook dipped.

The Federal Reserve announced the introduction of further swap lines for overseas central banks. The latest move will cover the repurchase market in order to improve the functioning of markets and lessen the risk of disorderly sales by overseas holders of US assets.

The Fed move triggered initial losses and the US retreat accelerated after the London fix with a EUR/USD recovery to the 1.1000 area. Volatile trading continued after the European close and the pair held just above 1.1000 on Wednesday ahead of significant US data releases later in the session.

China announced that there would be further targeted cuts in reserve ratio requirements for medium and small banks. The dollar maintained a firm tone into the New York open with a peak around 108.70, but then reversed in US trading. With position adjustment fading, USD/JPY declined sharply to lows near 107.50, although there were choppy trading conditions amid month-end pressures with the yen resilient.

San Francisco Fed President Daly stated that she suspected the US was already in recession and reiterated that the central bank is prepared to do whatever it takes within its powers. Cleveland head Mester stated that an unemployment rate above 10% was feasible.

US equities closed lower which limited the potential for any dollar recovery attempt and President Trump denied that he was considering removing trade tariffs.

Japanese Prime Minister Abe stated that he was not in a situation to declare an emergency now, but the government stated that the country was on the brink and the Tankan business confidence index declined to 7-year lows. Although the Chinese Caixin PMI manufacturing index strengthened to 50.1 from 40.3, risk appetite remained fragile and regional equities moved lower with the dollar registering net losses and USD/JPY trading near 107.35 in early Europe.

The latest UK current account data was better than expected with the deficit held to £5.6bn for the fourth quarter of 2019 from £19.9bn previously. Primarily, this reflected an erratic improvement in the trade account due to an export of precious metals.

There was further uncertainty over the UK/EU trade outlook as pressure continued for the transition period to be extended as uncertainty remained intense.

Sterling still tended to lose ground in early Europe, although there was a reversal ahead of the New York open with little evidence of month-end selling. Positioning was certainly important and tended to support the UK currency during the day. From lows below 1.2300, GBP/USD recovered ground and gains accelerated towards the European close with a move above 1.2400.

Economic Calendar

Expected Previous
07:00 EUR German Retail Sales (M/M)(FEB) 0.10% 1.00%
07:00 EUR German Retail Sales (Y/Y)(FEB) 1.50% 2.10%
08:45 Markit/ADACI Mfg PMI(MAR) 43 48.7
08:50 Markit Mfg PMI(APR) 42.9 42.9
08:55 EUR German Manufacturing PMI (M/M)(APR) 45.5 45.7
09:00 Unemployment Rate(FEB) 9.80% 9.80%
09:00 Euro-Zone PMI Manufacturing(APR) - 44.8
09:30 GBP PMI Manufacturing 47 48
10:00 Euro-Zone Unemployment Rate(FEB) 7.40% 7.40%
12:00 USD MBA Mortgage Applications - -29.40%
13:15 USD ADP Employment Change(MAR) -150K 183K
13:45 USD Manufacturing PMI(APR) - 49.2
14:30 CAD RBC Manufacturing PMI(MAR) - 51.8
15:00 USD Construction Spending (M/M)(MAR) 0.50% 1.80%
15:00 US Manufacturing ISM(M/M)(MAR) 44.3 50.1
15:30 USD Crude Oil Inventories - 1.623M

*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.