First stage of crisis is over
A dip in risk appetite around the market open put Sterling on the defensive again. The Pound dipped just below 1.2630 against the Dollar before finding fresh support and rebounding, and the Euro slowly gained ground. The Bank of England’s Jon Cunliffe stated that another sharp re-pricing of risk is still possible and there is likely to be a great deal of pain for the financial sector, but the first stage of the crisis is over. He also stated that it was too soon to forecast the second half of the year, there had been evidence of a slight recovery in April and May but the economy was unlikely to return to pre-crisis levels until mid-2021. Cunliffe wasn’t enthusiastic over negative rates due to the negative impact on the financial sector. Sterling edged higher into the close, attempting 1.2750 against the Dollar, although the Euro held below 1.1235.
Sterling trades above 1.2750 against a weak Dollar and the Euro is marginally lower at 1.1240.
The US NFIB small-business confidence index recovered to 94.4 for May from 90.9 and above consensus forecasts of 92.0 with increased confidence that there would be a short-lived recession. Sales expectations have rebounded from record lows while investment intentions registered only a minor improvement.
The US JOLTS data recorded a sharp decline in US job openings to 5.05mn at the end of April while separations eased to 9.9mn from 14.64mn the previous month, although this suggested net job losses of over 6.0mn for the month. The IBD consumer confidence index declined to 47.0 for June from 49.7 previously.
The dollar overall was unable to gain further support and the Euro secured fresh gains to the 1.1350 area. The Federal Reserve (Fed) will announce its latest policy decision on Wednesday with markets monitoring comments on potential yield-curve control. There will also be a press conference from Chair Powell and fresh economic projections. The dollar will be vulnerable if there is a very dovish stance with the Euro just above 1.1350.
German import and export data both declined in April as the trade surplus also dipped sharply to EUR3.2bn from EUR12.8bn the previous month. Additionally, French data also recorded a decline in April exports of over 32% for the month.
The trade data undermined confidence in the near-term German and Euro-zone outlook and the Euro moved lower to below 1.1250. There was a small upward revision to the first-quarter Euro-zone GDP data with a contraction of 3.6% compared with the figure of 3.8% reported previously. There is still some caution ahead of Thursday’s Eurogroup meeting and rhetoric surrounding the recovery programme.
After finding support below 1.1250, the common currency rose up strongly in the US session to push above 1.1350 where it continues to trade this morning.
Data to watch
12:30 – USD – CPI
12:30 – USD – Core CPI
18:00 – USD – FOMC Economic Projections
18:00 – USD – FOMC Statement
18:00 – USD – Federal Funds Rate
18:30 – USD – FOMC Press Conference