Post date: 27/04/2020 12:35

Most major currencies moved in relatively tight rice ranges last week, at least by the standards of the past few weeks. The main exceptions were those exposed to oil prices, like the Norwegian Krona and the Mexican and Colombian pesos, which dropped sharply in reaction to the mayhem in the oil market that ended with much lower oil prices across the board. Elsewhere, a generally negative tone in risk assets was supportive of the US dollar, which rose against most of its peers.

Central banks will be the key focus of currency traders this week. The Federal Reserve meets on Wednesday and the ECB does on Thursday. We expect relatively little news out of the former, given how active and aggressive it has already been in announcing various stimulus and support programs. As for the ECB, we expect to see an expansion of existing programs, particularly the PEPP asset purchase program announced right at the beginning of the crisis, increasing the size to a point where it can absorb all the expected issuance from peripheral sovereigns through at least the end of 2020.


Data out of the UK was dreadful as expected. The exception was the March jobless claim, but these were roundly ignored as they do not yet reflect the surge in layoffs in late March. The re-emergence of hard Brexit concerns was not kind to Sterling, which had the second worst performance among G10 currencies. This week, data out of the UK will be sparse and we expect the Pound to trade mostly off of news elsewhere.


Markets appeared to have been somewhat disappointed by the EU’s aid package to the countries more affected by the pandemic. We take a more positive view. Between the €540 billion agreed to last week and the existing arsenal of tools, more critically the €750 billion PEPP ECB program, there is sufficient firepower for member states to run the deficits they need to finance the response to the crisis and the recovery from it. We think an increase in the PEPP is likely at Thursday ECB meeting, which should drive the point home to markets and be supportive of the Euro over the next few weeks.


The US dollar has withstood quite well the steady drumbeat of disastrous economic data. Last week jobless claims numbers reflected the loss of another 4.4 million jobs. supporting our view that casual labor relations in the US are likely to maximize the damage from the enforced shutdown of the economy. It is likely that the actual unemployment rate in the US is close to 20% by now, a faster pace of job destruction than we have seen elsewhere. The Federal Reserve has been appropriately aggressive in deploying programs to support the economy, and therefore we expect relatively little news to come out of Wednesday FOMC meeting.