Fragile sentiment affecting trade talks
The UK employment data generated a relatively limited impact as it only included the first week or so of lockdown, and greater insight is expected in next month’s figures. Chancellor Rishi Sunak stated that the unemployment rate is forecast to rise over 10% in the short term.
Sterling benefitted from better risk appetite, but underlying sentiment remained fragile given the difficulties in exiting lockdown measures and EU/UK trade talks progress remained a negative factor. The Pound registered net gains against the Dollar but selling interest near 1.2300 dragged the pound back to near 1.2250 while the Euro retreated to the 1.1217 area.
Risk appetite appears firmer today as CPI inflation dropped below forecasts to 0.8% for April (from 1.5% previously) due to declining energy prices. The core rate dropped to 1.4% from 1.6% last month, maintaining expectations that the Bank of England will increase monetary easing. Sterling is little changed against the Dollar at around 1.2260.
US April housing starts declined to an annualised rate of 0.89mn from 1.28mn previously, the sharpest decline on record while building permits dipped to 1.07mn. Federal Reserve (Fed) Chair Powell continued to push for additional fiscal stimulus in order to lessen the risks of prolonged unemployment and Boston Fed President Rosengren also pushed for increased congressional fiscal support.
The dollar continued to lose ground in European trading with a further dip in defensive demand as commodity currencies posted a fresh advance. Against the Euro the greenback hit highs around 1.0975 before fading. The dollar also regained some ground as risk appetite dipped early this morning. However, there was the fresh USD selling this morning as the dip in risk assets was seen as a buying opportunity. The EURUSD settled just below 1.0950 and GBPUSD to 1.2230.
The Euro continues to build on positivity and gained some follow through traction yesterday against its US counterpart. The common currency remained well supported by the Franco-German proposal of a €500 billion European recovery fund whilst receiving an additional boost from encouraging data from the Eurozone. German Economic Sentiment bounced further to 51.0 in May from 28.2 previously alongside the gauge for the broader Euroland also improved to 46 compared to -12.1 expected.
On the docket today, market participants will look forward to the Eurozone’s final CPI print and the preliminary estimate for the Consumer Confidence for the month of May.
As of writing The Euro trades just above the 1.0950 against the Dollar.
Data to watch
06:00 – GBP – CPI
13:30 – GBP – BOE Gov Bailey Speaks
18:00 – USD – FOMC Meeting Minutes