Sterling rallied against the dollar on Tuesday after an instalment of economic data from Europe which revealed one of the worst contractions in economic activity in history and the Federal Reserve unleashed unlimited stimulus.

Sterling rose to $1.1780 on Tuesday as the dollar sank against all major currency pairs.

The Euro was also up against the dollar with EUR/USD rising to 1.0810.

The rally in European currencies came as services and manufacturing data revealed some of the worst economic conditions history. If anyone was unsure about the impact of coronavirus on the European economy, today’s data gives a very clear picture.

Both the manufacturing and services sector contracted, but the services sector was the most heavily hit.

UK Services PMI plummeted to 35.7 from 53.2 previously, while Manufacturing PMI fell to 48 from 51.7. Anything below 50 represents a contraction.

With the services sector making up a large part of the UK economy, it is almost inevitable the UK economy will shrink in the first quarter.

Whether the UK enters a technical recession of two quarters of economic contraction will depend on the speed economic recovery, once the coronavirus health crisis eases.

Oil rallies

Oil was also trading higher on Tuesday in a broad risk-on rally that saw WTI and Brent both rally sharply on reports the G7 were pressuring OPEC to resolve their issues and help bring supply under control whilst the United States suggested a US-Saudi alliance.

The strength in oil fed through to equity markets sending oil majors BP and Shell up over 10% and lifting the FTSE 100 in the process.

Oil analysts have turned increasing bearish on oil prices recently as Saudi Arabia and Russia engage in a price war that has rocked the global oil markets. Markets fear increased supply will far outweigh current demand and both Russia and Saudi Arabia have showed no signs of reconciliation during the COVID-19 outbreak.

WTI oil was trading $23.30 and Brent at $27.81 in afternoon trading on Tuesday.