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Lagging behind

Lagging behind


Throughout Thursday the Pound ceded ground, mainly on concerns that the UK economy would lag behind it’s peers in “the recovery”. The market also priced in incredulity at the Bank of England’s forecast of a sharp economic rebound once freedom returns. Also, expectations rose of a further expansion to the asset purchasing scheme at the June policy meeting. 

Although the UK market was closed for the May Bank Holiday on Friday, a weaker US Dollar tone allowed Sterling to move back above the 1.2400 level and 1.1455 on the Euro. Futures market data revealed further evidence of negative underlying sentiment with a 4 month high in short term bets against the Pound. There was also uncertainty surrounding today’s Brexit trade negotiations with a congested talks schedule of weighty matters and the fact this is the penultimate round before the June deadline to make substantial progress and an outline deal. The Prime Minister’s lockdown bulletin had little overall impact, if anything there was mild concern the UK would lag behind other countries. Sterling opens just above 1.2400 on the Dollar and the Euros around 1.1450. 



The US NonFarm payroll employment report recorded a record-shattering decline in April non-farm payrolls: 20.5 million jobs lost and the figure for March was revised up to 870,000. Despite being marginally below consensus forecasts this still marks a huge margin in the history books. Manufacturing shed 1.33 million jobs for the week while there were heavy losses of 7.65 million jobs in the leisure and hospitality sector. There were also notable losses in healthcare as non-emergency healthcare was stopped. Unemployment increased to a record high of 14.7%, below consensus forecasts of 16.0%, but there were statistical distortions as the participation rate declined sharply and data suggested unemployment was closer to 20%. Average hourly wages registered a sharp 4.7% increase and year-on-year increase of 7.9% as lower-paid workers were more likely to be laid off.

The market reaction was mild with the focus on hopes for recovery and the huge job losses had already been priced in. There was an overall decline in defensive Dollar demand with the Euro settling around 1.0840 from a peak around 1.0875.



Underlying Euro confidence has remained fragile amid concerns that the ECB bond-buying programme would be jeopardised by the German Constitutional Court ruling.  

CFTC data recorded a small decline in long Euro positions to 76,000 contracts from 80,000 the previous week, but the overall positioning will still tend to be a negative Euro factor. Overall demand for the commodity currencies held firm with a dip in US dollar defensive demand and the Euro was held just below 1.0850.

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