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More QE in Q2

More QE in Q2

GBP

UK consumer spending recovered in the latter half of April as BRC Like-for-like sales increased by 5.7%, but it wasn’t enough to bolster the shattered confidence in the UK economic outlook. NIESR forecasted the economy would likely to shrink 25-30% year on year for the second quarter. Also, leaked documents appeared to show a fiscal deficit of £337bn for the current fiscal year. Pound sentiment remained sour with political and economic concerns and the government is facing persistent criticism of its covid-19 response.

The Pound fleetingly moved back above 1.2300 on the Dollar before slumping below 1.2250 and the Euro strengthened to move below 1.1275. The RICS housing index declined to -21 from 9 previously, the market has been effectively closed. Bank of England Governor Andrew Bailey strongly hinted that further quantitative easing was on the way and also stated that the bank was ready to help finance government spending to ease potential austerity measures. The indication of potential debt monetisation will likely unsettle markets as the economic cost escalates. Sterling kicks off at 5-week lows below 1.2200 on the Dollar  and the Euro near 1.1286 at market open this morning.

 

USD

In his interview yesterday, Federal Reserve (Fed) chair Powell reiterated that the Fed committee remained opposed to the use of negative interest rates, especially given potential adverse effects on the banking sector. As far as the economy is concerned, Powell stated that further support may be needed given the depth of the downturn. He also stated that there was a sense within the Fed that the economic recovery would be slower than expected. 

Following his comments, there were further underlying concerns over the US recovery path and persistent weakness. The rejection of negative interest rates did, however, underpin the dollar and the US currency also gained an element of defensive support against the Euro initially weakening to the 1.0850 area. 

The dollar continued to gain defensive support later in yesterat with the Euro dipping to below 1.0820 as commodity currencies weakened and the Euro was held fractionally above 1.0800.

 

EUR

The Euro remains on the defensive as we move to the latter part of the week, with the common currency hovering just above the 1.0800 mark. It continues losing ground for the second consecutive session on Today, on the back of the improved Dollar and the broad-based consolidative sentiment in the global markets.

Many European economies still remain quite short of returning to any sort of normality albeit at a gradual pace. This despite the recent increase in infected cases in Germany. 

 

Data to watch

10:30 – GBP – BOE Gov Bailey Speaks

12:30 – USD – Unemployment Claims

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