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No-deal trade must be avoided

No-deal trade must be avoided


An OECD report forecasted UK GDP would contract by 11.5% in 2020, the hardest hit of all major economies. In the event of a second coronavirus spike, the GDP contraction could be in the region of 14%. Sterling maintained a firm tone despite the data, hitting 1.2800 against the Dollar and 1.1240 on the Euro. Bank of England Governor Andrew Bailey stated that elements of the recovery were starting, but inevitably there will be caution from people after the lockdown ends. 

EU chief negotiator Michel Barnier reiterated there can’t be a deal without agreement on fishing and a level playing field, adding that the EU/UK relationship will differ from those with Canada and Japan. The CBI warned that a no-deal trade outcome must be avoided. The Pound pushed to 3-month highs above 1.2800 on the Dollar after the Fed statement while the Euro made net gains to 1.1200. Overnight the UK RICS housing index fell to -32 from -22 previously, the poorest data since early 2011. 

Risk appetite is weaker this morning and the Pound has retreated below 1.2700 on the Dollar, 1.1173 on the Euro. Fragile domestic sentiment took greater precedence given the dip in global risk confidence.


US consumer prices declined 0.1% for May which was in line with consensus expectations with the year-on-year rate declining to 0.1% from 0.3%. This was slightly below consensus forecasts of 0.2% and the lowest reading in October 2015. Core prices also declined 0.1% on the month with the annual rate declining to 1.2% from 1.4% and the lowest reading since April 2015. 

The Federal Reserve (Fed) held interest rates in the 0.00-0.25% range, in line with consensus forecasts. It reiterated that the coronavirus will weigh heavily on economic activity, employment and inflation in the short term and the central bank will use all available tools to support the economy. GDP was projected to decline by 6.5% for 2020.

The Fed stated that it would increase its holdings of Treasuries and mortgage-backed securities over coming months at least at the current pace.

The latest median forecasts from individual committee members indicated that the Fed Funds rate was expected to remain at zero until the end of 2022. The dovish rate forecasts were a key element pushing the dollar weaker in an immediate reaction.

Chair Powell was generally dovish, reiterating no possibility of even thinking of a rate hike, but he also stated that yield-curve control was still an open question. There were also no projections of negative interest rates. The dollar rallied on the commentary with the Euro back below 1.1400. Powell was also broadly downbeat over the outlook and commodity currencies retreated. The Euro retreated to just below 1.1350 on Thursday amid the more cautious risk tone and a wider US dollar recovery. 


The Euro maintained a firm tone yesterday and pushed higher as the Dollar came under renewed pressure and declined to 3-month lows. The single currency pushed to fresh 11-week highs near 1.1390 ahead of the US open before a slight correction. 

ECB Vice President de Guindos has also stated that the May survey shows some sign of the economy bottoming out whilst expecting the bloc’s economy to take up to two years to grow back to it’s pre-crisis level.

As of writing, the Euro trades around the 1.1350 mark against its US counterpart.



Data to watch

12:30 – USD – Core PPI

12:30 – USD – PPI

12:30 – USD – Unemployment Claims 

15:00 – EUR – Eurogroup Meetings

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