Kiwi falters as markets adopt a cautious tone

Key Movers

The USD and Japanese Yen were the benefactors of a push toward haven assets on Wednesday as a slew of dire macroeconomic data sets soured market demand for risk and prompted a flight to safety. The Japanese Yen rallied to 7-week highs while the US dollar index pushed back above 100, marking a new weekly peak as both the Euro and Pound Sterling tested two week lows. Softness across European and UK manufacturing data and US preliminary non-farm payroll numbers prompted markets to reassess expectations surrounding the speed and pace of the economic recovery in the wake of the coronavirus. Unemployment is expected to reach 16% in the US in April as job losses around the world continue to accumulate, heightening fears the looming recession and amplified rate of unemployment will delay any immediate or short-term bounce in economic activity. After the Global Financial Crisis and the Great Depression the reallocation of labour was slow, delaying the economic recovery and extending the recession. While there is some hope that the job losses today aren’t permanent and merely a product of the health lockdown the longer economic restrictions are in place the less likely some businesses and indeed industries will survive, meaning temporary job losses become permanent forcing consumers to rain in discretionary spending and subsequently slowing the pace of the recovery. We expect haven assets will remain well bid as uncertainty continues to plague broader recoveries in risk sentiment.
Attentions today turn to the Bank of England’s Monetary Policy and rate announcement, while US jobless claims dominate the North American Docket and ECB President Christine Lagarde address investors via a Bloomberg Webinar with analysts looking for reaction to yesterday’s German Constitutional Court ruling.