s anticipated in our note on Thursday, claims for unemployment benefits went through the proverbial roof in the US last week, far exceeding even some of the most pessimistic of expectations. New claims for unemployment benefits soared to an eye watering 3.3 million, an almost 1100% week-on-week increase. This by far and away eclipses any level reached during the 2008/09 financial crisis and suggests that a giant leap in unemployment and a sharp net contraction in jobs created are assured at next week’s labour report. The ordinarily second- or third-tier release became front page news.

In an unusual step, Fed Chair Jerome Powell took to national television stating that the Fed was ‘not going to run out of ammunition’ and that the bank still has ‘policy room in other dimensions to support the economy’. This is a clear move to assure employers to hang onto their staff during this difficult period when many have little choice but to shed workers left, right and centre.

Despite Powell’s reassuring comments, the dollar lost around one-and-a-half percent versus the euro yesterday, with the pair trading back at a more than one-week high above the 1.10 mark this morning. Another leap in confirmed COVID-19 cases in the US can be partly to blame, particularly now that the country has overtaken China as the worst affected country in the world.

Euro above 1.10 as new virus cases in Italy stabilise

The aforementioned rally in the euro can be attributed almost solely to broad dollar weakness. There has been no real catalyst for common currency strength, although the number of new daily cases of the virus does appear to be stabilising in Italy, which is reassuring. Hopefully this is a sign of things to come and that the virus is close to peaking there. Even still, Italy is also now almost certain to follow the US in overtaking China in terms of confirmed cases of COVID-19 in the next 24 hours.

The numbers out of Spain are also worrisome, with the death toll there already far outstripping that recorded in China. Economic ramifications will be severe, particularly so in these worst affected areas that will need to keep at least some degree of containment measures in place for a considerable amount of time. This mounting economic cost could begin to weigh on the euro in the coming days, although for now investors are mostly focused on the US, which seems to be acting in the single currency’s favour.

Sterling leaps higher, BoE ready to act if necessary

In line with a broadly weaker dollar, sterling jumped over 2% yesterday. Given the high risk premium placed on the pound due to Brexit and the UK’s large external deficit, moves in both directions in the GBP/USD cross have been exacerbated in the past few weeks, with large sell-offs commonly followed by sharp rallies, such as that witnessed yesterday.

There were no big bombastic announcements out of yesterday’s Bank of England meeting, which went mostly under the radar. Rates were kept unchanged at 0.1%, with policymakers voting to maintain the QE programme at £645bn, having increased it by £200bn last week. New governor Andrew Bailey warned that the virus could cause long-term damage to the UK economy and that it stands ready to act if necessary.

On the data front, retail sales figures for February were soft, although this was pre-coronavirus, so the data is largely irrelevant. The March numbers due out next month will take on far more importance and are almost certain to show a significant contraction.