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Transition period will not be extended

Transition period will not be extended


The EU Commission noted the UK’s intention to avoid requesting an extension of the transition period, meaning the finish date remains December 31st 2020. EU Commission head Von der Leyen was upbeat as talks will be intensified but the market caution over trade issues remain. Sterling was under renewed pressure at the outset but clawed back ground as equity markets pared losses. The move back above 1.2500 on the Dollar and 1.1111 on the Euro was also significant in firming up buying sentiment. The Pound moved higher still on the Fed’s announcement of their bond-buying plan, and further gains were secured overnight with a move above 1.2650 on the Dollar.

UK unemployment held at 3.9% in the three months to April, way below market expectations of a rise to  4.7% and employment figures posted a slight gain. The unemployment jobless claims added 528,000 to the dole queue following an increase of 857,000 previously, well above market expectations of around 400,000. The total number of hours worked declined sharply and wage increases remain stubbornly low. The Pound dipped slightly lower after the data but significantly held above the 1.2650 mark against the Dollar with the Euro just above 1.1173.



The New York Empire manufacturing index recovered strongly to a 4-month high of -0.2 from -48.5 previously and above consensus forecasts of -30.0. There was a strong recovery in the new orders index, although unfilled orders continued to decline at a significant pace. Employment declined at a slower pace while the workweek continued to decline. There was a sharp improvement in the six-month outlook to a 10-year high.

Kansas City Federal Reserve (Fed) President George stated that it was worth considering more fiscal stimulus to aid the recovery while Dallas President Kaplan stated that most forces will be deflationary over the next two years. 

After the European close, the Fed announced that it would start buying corporate bonds directly rather than through Exchange Traded funds. It also stated that it would buy bonds directly from issuers in the near future. This announcement triggered fresh equity buying and a further decline in dollar demand which pushed the Euro above 1.1300. The US currency continued to lose ground on Tuesday and commodity currencies strengthened with the Euro near 1.1340.



The Euro caught fresh bids yesterday and rallied over 1% from the daily swing lows of 1.1225. The strong move was sponsored by the emergence of some fresh selling around the Dollar, which struggled to gain any traction despite the sour market mood. Fears about a second wave of coronavirus contagion and the possibility of renewed lockdowns dampened prospects for a sharp V-shaped economic recovery and took its toll on the global risk sentiment.

On the docket today, German inflation numbers for May and the Zew Economic Sentiment for June.


Data to watch

06:00 – GBP – Claimant Count Change 

12:30 – USD – Core Retail Sales 

12:30 – USD – Retail Sales 

14:00 – USD – Fed Chair Powell Testifies


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