It was a busy week for the UK Treasury and the Bank of England and, indeed, for sterling. The pound came out of it as the second-best-performing major currency behind the Norwegian krone, adding an average of 1.9%. Mind, it was anything but a smooth ride: on Wednesday, sterling was knocked back and forth across a 3% range as a result of the illiquid market.
The two main events for the pound were last Friday’s announcement that the government would cover 80% of employers’ wage bills to discourage them from laying off workers and this Thursday’s extension of that scheme to the self-employed. Investors reacted positively to both of those moves. For its part, the Bank of England gave its imprimatur to a letter instructing the commercial banks to get on with providing the loans to businesses that will be underwritten by the government. The UK economic data added little to the mix. Most of them were historic and irrelevant. The only up-to-date figures were the purchasing managers’ index readings and the CBI’s surveys of manufacturing and retail sales: they were all as bad as expected.
Euroland is still struggling to come up with a stimulus plan to which all its member countries can sign up. The option most often touted is to tap the European Stability Mechanism. Nine countries have backed the idea of a joint “Coronabond” but Germany’s Angela Merkel has yet to be convinced. At a national level, Germany’s parliament has approved a €750 billion aid package, which will involve the first governmental borrowing since 2013.
Although the European Central Bank came out with no new monetary stimulus, it has floated the idea of activating the Outright Monetary Transactions, which were invented during the European debt crisis eight years ago but never used. OMTs would allow the ECB to direct support to where it is needed most, and to do so without limit. Investors were unsure whether the scheme will come to anything and they were lukewarm about the euro, which is 2.2% lower against sterling and 3% firmer against the US dollar.
A striking loss of form by the dollar left it in last place among the majors, down by an average of 3.3%. It lost three and a quarter cents to the euro and more than six cents to the pound. The relentless roll-out of stimulus packages by major countries at last persuaded investors that governments and central banks were serious about fending off the worst economic effects of the pandemic. Because of that, and perhaps also because of the speed with which Covid-19 has taken hold in the States, they no longer felt compelled to hide behind the dollar’s skirts.
On Thursday, two very different news items affected the dollar. First was the $2 trillion stimulus package approved by the Senate. Second was the record 3.283 million jump in unemployment claims. The former went down fairly well with investors: the latter – though not a complete surprise - was far worse than expected.
Coincidentally, the Canadian dollar was unchanged on the week against the euro. It did less well than its Australian and NZ cousins and lost nearly four cents to the pound but strengthened by two US cents. The correlation between the Loonie and the price of oil started off quite tight but fell apart towards the end of the week. WTI crude stabilised around the $23 level, an 18-year low, and was down by a modest 13% on the week.
The Canadian government was part of the global trend to make incremental upward adjustments to fiscal stimulus. On Thursday, it just about doubled the value of measures to support businesses and individuals. The total amount on the table now is $52 billion and finance minister Bill Morneau said there would be more to come “in coming days”. The economic data from Canada were no more relevant than those from anywhere else. January’s 0.4% increase in retail sales went unnoticed.
Just as the US dollar went from hero to zero, the Australian one rebounded to take third place behind the NOK and GBP. Although it lost more than a cent to the pound, the Aussie strengthened by two and three quarter US cents, 4.6%. In the same way that the US dollar lost support as a result of the global stimulus effort, the Aussie became more attractive – or less unattractive – for the same reason.
Last weekend, Prime Minister Scott Morrison rolled out his second economic stimulus package. It was approved by parliament two days later. The total amount pledged by the government so far is $189 billion. Like his peers elsewhere, Mr Morrison described the scale of the effort as “unprecedented”. The need for stimulus was clear from the provisional purchasing managers’ index readings for March. Although manufacturing managed to cling on in the growth zone at 50.1, services plunged nine points to 39.8.
Although there were no new stimulus measures from the NZ government, the Kiwi took heart from the schemes being put in place abroad. As a low-key member of the group of commodity-related currencies harshly referred to as “risky”, the Kiwi tends to go where they go. This week they tended to go higher, as investors’ risk-appetite was stimulated by the money being chucked at the economy by banks and governments. With nothing particular to distinguish itself, the NZ dollar went higher with them, strengthening by an average of 0.7% against the other majors. It went up by 4% against the US dollar and lost 1.2% to sterling.
Careful observers will have noticed that New Zealand’s trade deficit narrowed slightly in February and that consumer confidence deteriorated by 16 points in March to 106. Few investors paid any attention to the numbers.