Sterling struggling on weak sentiment
Bank of England member Saunders stated yesterday that it was safer to ease policy then tighten later if needed. A slight recovery in economic activity is likely as lockdown eases, but downside risks to outlook and the potential for a weak recovery still looms. He also considered the risk that the UK would fall into a low inflation trap and backed further bond purchases. As far as negative interest rates are concerned, Saunders commented that he would not rule them out, but not necessarily rule them in either.
UK chief negotiator David Frost reiterated that little progress had been made in EU trade talks and that the UK government would not back calls for the transition period to be extended. Overall Sterling confidence remained fragile, especially with unease over trade developments and wider concerns over government policy.
Sterling dipped to 1.2230 against the Dollar before pushing back above 1.2300 later in the day as the US currency lost traction once again whilst the Euro has hit resistance again around the 1.11 mark.
US first-quarter GDP was revised to an annualised rate of -5.0% from the first reading of -4.6% despite a slightly smaller rate of contraction in consumer spending. Jobless claims declined to 2.12 million from 2.45 million the previous week. This was the lowest reading for 10 weeks, although claims have been above consensus forecasts for the past 11 weeks in succession. Continuing claims declined to 21.0 million from 24.9 million previously, although markets were wary of distortions.
Durable goods orders declined 17.2% for April compared with market expectations of a 19.0% decline with underlying orders declining 7.4% on the month.
The dollar maintained a weaker tone with further evidence of month-end dollar selling on positioning grounds and a lack of defensive dollar demand.
Euro-zone industrial sentiment recovered slightly to -27.5 for May from -32.5 previously, but there was a further dip in services sentiment to -43.6 while the overall business and consumer survey recovered only slightly for the month. The German CPI inflation rate also declined to 0.6% from 0.9% and in line with consensus expectations, maintaining pressure for an expansive ECB policy.
The Euro maintained a solid tone ahead of the US open and traded just above the 1.1000 level against the US dollar, although there were still reservations whether the EU Commission EUR750bn recovery package would be agreed given opposition from fiscally-conservative countries.
As of writing, the Euro trades around the 1.11 mark against its US counterpart.
Data to watch
12:30 – USD – Core PCE Price Index
12:30 – USD – Personal Spending
13:45 – USD – Chicago PMI
14:00 – USD – Revised UoM Consumer Sentiment
15:00 – USD – Fed Chair Powell Speaks
19:00 – USD – President Trump Speaks