Volatility has remained extremely high across asset classes with substantial shifts in direction.

Volatility has remained extremely high across asset classes with substantial shifts in direction. US 10-year yields moved sharply higher to 1-month highs amid fears over medium-term budget trends.

The dollar made strong gains on higher US yields and a severe dollar shortage in money markets with the dollar index near 3-year highs and EUR/USD below 1.1000.

Money-market tensions eased on Wednesday after further central-bank injections and the dollar retreated to some extent.

Commodity currencies remained under sustained pressure with AUD/USD sliding to 17-year lows and the Norwegian krone hit fresh record lows before a slight recovery.

Sterling declined to 6-month lows on a lack of confidence before a tentative recovery on further UK government support measures.

The German ZEW investor confidence index declined very sharply to -49.5 for March from 8.7 the previous month. This was below market expectations and the weakest reading since December 2011. There was also a very sharp decline in the current conditions index, reinforcing fears over the near-term outlook.

The Euro continued to lose ground following the data as underlying confidence in the outlook weakened further with a EUR/USD retreat to near 1.1000.

US retail sales declined 0.5% for February compared with consensus forecasts of a 0.2% gain while underlying sales declined 0.4% with no change in the control group.

Industrial production data was slightly stronger than expected while the JOLTS job-openings data was stronger than expected and the NAHB housing index declined slightly for the month. The overall impact of the data releases was limited with markets concentrating on substantial economic damage over the next quarter at least.

Atlanta Fed President Bostic stated that Fed actions are meant to show there will be maximum stimulus available now and when the economy reaches the other side. He stated that the second quarter would be rough, but that a recession could be avoided with a third-quarter bounce.

The dollar overall continued to gain support as high demand for liquidity and de-leveraging triggered further demand for the US currency while 3-month dollar Libor rates moved sharply higher.

EUR/USD dipped further to near 1.0950 and the US currency strengthened to near 3-year highs before a slight correction.

The Federal Reserve moved to support credit flows by establishing a commercial lending facility to buy bonds directly from companies. The dollar maintained a strong tone initially, but aggressive central bank liquidity injections did ease pressure in money markets and it retreated on Wednesday with EUR/USD just above 1.1000.

Global equity markets dipped again ahead of the New York open which triggered support for the Japanese yen as choppy trading conditions persisted.

The dollar was resilient, however, amid underlying demand for the US currency. Wall Street equities made net gains during the day, but the bond market was a key focus as yields moved sharply higher. Markets continued to monitor US fiscal developments as Treasury Secretary Mnuchin stated that the fiscal package of $1.0trn was needed as unemployment could hit 20% without government intervention.

There were concerns over the medium-term impact on the budget deficit, especially with deficits already running at high levels ahead of the outbreak. The 10-year yield increased very sharply to above 1.05% from 0.70% which provided net dollar support while the spread between 5 and 30-year bonds widened to 30-month highs. The spike in yields triggered further underlying volatility in equities.

As New York equities secured further net gains, the US currency secured further net gains with a USD/JPY advance to above 107.50. US equity futures moved lower again on Wednesday as volatility remained intense. Japanese exports declined 1.0% in the year to February with imports from China at 34-year lows. USD/JPY edged back below 107.00 in early Europe before consolidating near this level with further volatility inevitable.

The UK unemployment rate increased to 3.9% in the three months to January, although there was a larger than expected increase in employment. Headline average earnings growth also strengthened slightly to 3.1% from 2.9% previously, although the overall impact was negligible as risk aversion dominated.

Sterling remained under pressure during the day with fears over the global outlook continuing to undermine support for the UK currency. The UK also stated that the latest round of EU trade talks will not take place.

The UK government unveiled another major financial support package for the economy including £330bn in government-backed loans and guarantees to underpin companies and individuals. The Bank of England also announced further lending support for small companies. Sterling did recover some ground following the support measures, although underlying sentiment remained generally negative.

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