The Prime Minister‘s first day back at number 10 coincided with the announcement that the UK is passing the peak of the virus but that it was too soon to ease lockdown restrictions at this stage. The markets concern was that the UK’s return to normality would lag behind European countries, and the longer lockdown would potentially increase economic damage in relative terms. Chancellor Rishi Sunak announced loans for small companies 100% guaranteed by the government, but added the taxpayer could not be expected to provide limitless support.
The Pound held its own against the Dollar but was unable to break above 1.2450 and gradually faded after the US market opened. The Pound traded against the Euro within a 20 range all day; doldrum territory. With business largely upended there is uncertainty over potential month-end currency flows, normal commercial flows are disrupted by the economic downturn and the absence of overseas tourism, potentially leading to more Pound resilience than usual. Risk appetite is more fragile this morning which will hamper Sterling support.
The US Dallas Fed manufacturing index declined further to -73.7 for April from -70.0 the previous month as activity in the energy sector inevitably remained depressed.
There were, however, no major data releases yesterday and there was also an important element of caution ahead of key events this week. The first-quarter US GDP data is due tomorrow, together with the latest Federal Reserve (Fed) meeting.
Overall ranges were relatively narrow during the day yesterday as volatility faded in currency markets despite further sharp moves in oil prices.
Against the Dollar, the Euro retreated to the 1.0820 area against the dollar towards the European close. The Federal Reserve provided additional monetary policy support with an expansion of the Municipal Liquidity Facility. The dollar, held firm on this morning as oil prices came under renewed selling pressure.
The Euro held a firm tone in early Europe on Monday and briefly moved above the 1.0850 level but failed to hold any gains as the Dollar recovered slightly from its worst levels. There were also still important reservations over the Euro-zone outlook which curbed further single-currency buying support.
The latest Italian data recorded an increase in coronavirus infections of fewer than 1,750 for Monday and the lowest reading for 7 weeks which maintained the overall flow of more positive coronavirus developments from the Euro-zone area.
As of writing the Euro trades just above the 1.0820 against its dollar counterpart.
Data to watch
07:00 - EUR - Spanish Unemployment Rate
14:00 - USD - CB Consumer Confidence
Posted in Daily Market News on Apr 28 2020