Dollar gains broadly on risk-off trade as well as recovery in U.S. yields and stocks: Mar 18, 2020
Market Review - 18/03/2020 00:04GMT
Dollar gains broadly on risk-off trade as well as recovery in U.S. yields and stocks
The greenback ended higher across the board on Tuesday due to risk-off trade on continued concern over economic impact from worldwide spreading of coronavirus and selloff in euro and sterling on U.S. dollar funding squeeze as the EUR/USD three-month fx swap spreads widened to its lowest levels last seen since 2011 as well as strong recovery in U.S. Treasury yields and stocks.
Versus the Japanese yen, dollar initially gained to 107.18 in Asian morning on strong recovery in U.S. Treasury yields before retreating to 106.18 on profit-taking. However, the pair later rallied to session highs at 107.86 in New York afternoon on usd's broad-based strength together with rise in U.S. equities and yields.
Although the single currency moved sideways in Asia, price met renewed selling at 1.1188 and intra-day fall accelerated in European morning. The pair then easily penetrated Monday's 1.1047 low and hit an 18-day low at 1.0956 in New York morning due partly to downbeat ZEW data as well as usd's broad-based strength before moving broadly sideways.
Reuters reported the mood among German investors slumped in March to levels last seen in the 2008 financial crisis due to alarm about the impact of the coronavirus outbreak, a survey showed on Tuesday. The ZEW research institute said its monthly survey showed economic sentiment among investors collapsed to -49.5 from 8.7 in February. Economists had expected a drop to -26.4. "The economy is on red alert," said ZEW President Achim Wambach in a statement, adding financial experts expect the economy to shrink in the first quarter and think a contraction is also very likely in the second quarter. A separate gauge measuring investors' assessment of the economy's current conditions decreased to -43.1 from -15.7. Analysts had forecast a reading of -30.0.
Although the British pound recovered to 1.2273 in Australia after Monday's selloff to 1.2203 in New York, price dropped to 1.2233 in Asian morning before rebounding again to 1.2266 on short-covering but only to continue its recent decline and later tumbled to a near 6-1/2 month bottom at 1.2000 (Reuters) in New York. Later, cable staged a strong recovery to 1.2114 on short-covering.
Reuters reported Britain created more jobs than expected in the three months to January but unemployment rose too by the largest amount since 2011, a sign that the labour market tightened further before the impact of coronavirus began to bite. While figures last week showed that Britain's overall economy showed zero growth in the three months to January, Tuesday's official data extended a run of hefty increases in employment. The number of people in work rose by 184,000 to 32.985 million, the Office for National Statistics said, driven by record quarterly increases in full-time and female employment. A Reuters poll of economists had pointed to a 143,000 increase.
But the figures also showed unemployment rose by 63,000 in the three months to January, the biggest increase since late 2011. For now, the data show wages have been growing steadily. The ONS said total earnings growth, including bonuses, rose by an annual 3.1% in the three months to January from 2.9% in the three months to December.
Excluding bonuses, which smooths out some volatility, pay growth slowed to 3.1% in the period to January from 3.2%. Economists had expected total pay to grow by 3.0% and regular pay to grow by 3.2%.
In other news, Reuters reported the U.S. Federal Reserve on Tuesday said it would relaunch financial crisis-era purchases of short-term corporate debt to thaw credit markets strained by an escalating public health emergency that has disrupted daily life for millions of Americans and threatens to push the economy into recession. Under the Commercial Paper Funding Facility, first used in 2008, the central bank will buy short-term corporate debt directly from the companies that issue it. The Fed said the facility will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle that will purchase unsecured and asset-backed commercial paper directly from eligible companies.
The commercial paper market is a key source of short-term funding for a range of businesses, but liquidity has dried up in recent weeks. The U.S. central bank has been forced to take several emergency actions over the past two weeks. It has already slashed interest rates to near zero, pledged hundreds of billions of dollars in asset purchases and injected cash into short-term funding markets, among over moves.
On the data front, Reuters reported the Commerce Department on Tuesday said U.S. retail sales in February & fell 0.5%. Economists polled by Reuters had forecast retail sales would gain 0.2%. Data for January was revised up to show sales rising 0.6% instead of 0.3%.
Data to be released on Wednesday :
New Zealand current account, Australia Westpac leading index, Japan exports, imports, trade balance, Germany wholesale price index, Italy industrial orders, industrial sales, trade balance, EU trade balance, HICP, core HICP, U.S. MBA mortgage applications, building permits, housing starts, and Canada CPI, core CPI.
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