We’ll walk away
Sterling confidence remained poor during Friday and there was a dearth of positive economic fundamentals. The trade outlook continued to trigger concerns following completion of the latest round of EU/UK talks on the future relationship. The UK’s Chief negotiator David Frost blamed unreasonable EU demands for access to UK markets and fishing as the reason for the lack of any progress. EU chief negotiator Barnier blamed unrealistic demands for the stalemate and the UK threatened to walk away from the talks. The Euro strengthened to 3-month highs near 1.1175 and Sterling also declined to 7-week lows around 1.2100 against the Dollar.
Over the weekend Bank of England Chief Economist Andy Haldane stated that the central bank needed to look at further options including negative interest rates and buying riskier assets through the bond-buying programme, although he also said that the bank wasn’t going to act immediately on any of these options. Sentiment remained weak and Sterling dipped to lows near 1.2075 against the Dollar before a slight recovery amid firmer risk conditions.
In the US, the monthly retail sales missed consensus estimates by a big margin and plunged 16.4% in April. The US dollar turned lower in reaction to the awful macro data and provided an additional boost to the major. Fears about the second wave of coronavirus infections, along with worsening US-China relations continued lending some support to the greenback’s relative safe-haven status and capped any meaningful upside for the pair. In the latest development, the US Commerce Department announced to bar Huawei from acquiring semiconductors and chipsets made using US software and technology.
Following the retail sales data, estimates suggested second-quarter GDP could contract at least 40% on an annualised basis. The Euro against the Dollar posted gains after the data with a peak near 1.0850 against the dollar, but the US currency gradually regained ground, especially with sharp losses for commodity currencies underpinning the dollar.
The Euro still remains side-lined between 1.0770 and 1.10. With a nearer-term resistance at 1.0890.
ECB Chief Economist Phillip Lane stated in an interview regarding their coronavirus response that the ECB has done a lot already, are continuously monitoring the situation whilst also being ready to adjust all their instruments if necessary.
As of writing, the Euro is trading around the 1.0815 against the Dollar.