Today’s statements by Federal Reserve Chairman Jerome Powell on the US economy and lending, immediately after the Senate approved $2 trillion in aid, supported the purchase of risky assets, which led to a weakening of the US dollar’s position against a number of world currencies.
Given the current situation in the United States, Powell said that the economy may well be in a recession, as the virus will dictate the schedule for economic growth, and therefore the central bank will continue to support the flow of credit. New loans will be provided as needed. The Fed chief also noted that the sooner the virus is under control, the faster the economy will return to growth.
Today’s data on Germany and eurozone lending did not greatly please investors, although this is only the tip of the iceberg. According to the report, the GfK consumer confidence index in Germany declined. The data is ahead of schedule, which signals a sharp reduction in consumer spending. Thus, the leading index of consumer sentiment GfK for April 2020 fell to 2.7 points against the March figure of 8.3 points. All three components of the index fell at once. Economists had forecast the index at 7.5 points.
The company confidence index in France also showed the sharpest drop in history. According to the report, in March, the index of company confidence in France fell to 94.7 points from 105.0 points in February. It is worth noting that the data are not complete and do not reflect the whole picture, which will be more clearly visible immediately after the departure of the coronavirus pandemic. However, based on the analysis of available data, it can be concluded that the French economy will significantly contract in the 1st quarter and seriously collapse in the 2nd.
Lending to households in the eurozone remained almost unchanged in February this year. According to a report from the European Central Bank, lending increased by 3.8% in February against 3.7% in January this year. Lending to companies in February increased by 3.0% against 3.2% in January, and the monetary aggregate M3 of the eurozone in February increased by 5.5% per annum.
As for the technical picture of the EURUSD pair and forecasts of further movement, then we should remember the resistance of 1.0975, which I paid attention to this morning. It is possible that the demand for the euro will decrease in this area, which will be a signal to sell the euro further along with the trend. However, if there is no activity from the bears, most likely, the major players will prefer to retreat even higher, to the resistance of 1.1050.
The pound rose slightly after the Bank of England left the key interest rate at 0.1%, and the volume of the bond purchase program at 645 billion pounds. This decision was taken by a vote of 9 to 0.
The regulator said it is ready to take further measures to support the economy, as it sees a very sharp reduction in economic activity. The inflation rate is expected to fall below 1% in the spring but then rise due to the sharp fall of the pound. There were no more specific forecasts for slowing economic growth.
However, judging by the fact that already in February this year, retail sales in the UK fell by 0.3%, and compared to the same period in 2019 remained unchanged, we can conclude that future larger March falls in the indicator, which will have a negative impact on the country’s economy as a whole. Sales were forecast to grow by 0.3% and 0.8%, respectively. Retail sales excluding motor fuel in the UK fell by 0.5% in February.