(10 March 2020)DAILY MARKET BRIEF 2:The US dollar recovered a part of Monday’s heavy losses.

The US dollar recovered a part of Monday’s heavy losses. The EURUSD eased to 1.1331 after having tested the 1.15 offers during yesterday’s dollar meltdown. Further relief in US dollar should trigger a deeper downside correction in the single currency before Thursday’s European Central Bank (ECB) meeting, given that European officials cannot just sit and watch the actual market rout; they may be tempted to intervene as well. The ECB is expected to maintain the interest rates unchanged at this week’s meeting, but we do not rule out a surprise action, or a verbal intervention to reassure investors. Due today, the Eurozone GDP may have eased to 0.1% in the fourth quarter from 0.3% printed a quarter earlier. Today’s release doesn’t take the coronavirus impact into account, therefore the lower the figure, the higher the risk of a growth below zero in the first quarter of 2020.

Moving forward, the major slump in oil prices will likely weigh on the European inflation and push the ECB to deploy further easing measures to boost growth and inflation, either through lower interest rates, or another round of targeted loans and balance sheet expansion.

Speaking of inflation, consumer prices in China eased to 5.2% in February as non-food price inflation fell significantly. Yet, food price inflation surged to the highest since 2008 as pork prices which have skyrocketed due to a disease in the recent months surged even more on quarantines and transport restrictions due to coronavirus.

The British pound returned to 1.3020 against the US dollar from near 1.32 reached on yesterday’s heavy USD sell-off. The rise in Cable hides the mounting risks of no-deal Brexit. Therefore, any relief in US dollar should hand sterling back to the bears’ hands and encourage a slide below the 1.30 mark

By Ipek Ozkardeskaya