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Sterling flat as new week begins

Sterling flat as new week begins

GBP

NIESR estimates put the UK GDP contraction at 17.6% for the latest 3 month period, the annual GDP estimate showed contraction of 21.3%, down from 24.5% last month. For the monthly estimates, NIESR had forecasted growth of 4.5% following April’s slump but it now expects a renewed decline in June and a second-quarter contraction around 20-25%. Michael Gove announced on twitter that the UK has formally confirmed it won’t seek an extension to the transition period, adding that customs checks on goods into the UK from the EU would be delayed for six months. Boris Johnson will meet EU president Angela von der Leyen and other and EU officials today with reports that the UK will push for a deal by Autumn.

Bank of England Governor Andrew Bailey stated that April’s GDP figures were close to expectations and there were early signs that the economy was spluttering back to life. The question remained over how much damage but the bank was ready to take action. The comments reinforced expectations of a further increase in bond purchases of at least £100bn at this week’s policy meeting.

The Pound lost ground as weaker risk appetite also contributed to the erosion of support. Sterling fell to lows below 1.2500 on the dollar before a recovery while the Euro settled around 1.1140. Sterling remains on the defensive this morning, below 1.2500 on the Dollar as equities fell and the Euro floats around 1.1111.

 

USD

US import prices rose 1.0% for May after a 2.6% decline previously with a 6.0% annual decline. The University of Michigan consumer confidence index strengthened to 78.9 for June from 72.3 the previous month and above consensus forecasts of 75.0, the highest reading for four months, although still well below pre-COVID levels.

According to the latest monetary policy report, real GDP appears to be plummeting at a breath-taking pace for the second quarter, but manufacturing activity improved for May while the economy is still expected to be fragile in the short term. 

Overall risk appetite was more fragile during Friday’s US trading with the Dollar securing increased support and the Euro retreated sharply to lows below 1.1220 before settling around 1.1250 as equities recovered in choppy conditions. 

 

EUR

Euro-zone industrial production declined 17.1% for April following a revised 11.9% decline for the previous month, although this was slightly better than consensus forecasts. The Euro held a firm tone into the US open on Friday but failed to advance to the 1.1350 area.

CFTC data recorded a renewed increase in long non-commercial Euro positions to 96,000 contracts from 81,000 previously and the highest level since May 2018, increasing the risk of significant selling if confidence retreats. 

The Euro has edged lower as we start a new trading week as a firmer Dollar tone and fragile risk appetite support the US currency. As of writing, the euro trades around 1.1235 against its US counterpart.

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