UK bond yields moved lower on Friday with the 5-year yields dipping into negative territory. Speculation continues that the Bank of England may decide on negative interest rates. Sterling lost ground on Friday, moving below 1.2200 against the dollar, although overall ranges were relatively narrow. Underlying sentiment remained weak following the slide in retail sales and surge in government bowing with April’s borrowing requirement close to the total for the whole of fiscal 2019/20.
Trade tensions were also a significant background factor with German European Minister Roth stating that time was running out for a deal by the end of 2020. There was, however, some wariness over the potential for short covering with Sterling settling just below 1.2200 against the dollar while the Euro was around 0.8935. The government announced a limited re-opening of retail shops from June 15th but this was overshadowed by the on-going political row over Prime Minister Johnson’s chief adviser and overall Sterling sentiment remained fragile. Firm risk conditions provided an element of Sterling support on Tuesday as it traded around 1.2230.
Concerns about worsening US-China relations extended some support to the US dollar's relative safe-haven status and led to some weakness over the long weekend. The latest optimism over a potential COVID-19 vaccine remained supportive of the prevalent risk-on mood, which drove flows away from the safe-haven USD and assisted other currencies to regain some positive traction this morning.
Later during the early North American session, the Conference Board's US Consumer Confidence Index might provide some impetus.
The Euro continued to lose ground on Friday as underlying dollar demand increased slightly with the single currency retreating to the 1.0900 area.
According to the CFTC data, there was a small downturn in overall Euro long positions, Despite the fact there is still a significant position which will limit the opportunity for Euro gains.
Over the weekend, there was significant opposition to the Franco-German proposal for a EUR500bn recovery scheme which would be funded through grants. The Finance Ministers of Denmark, Sweden, Netherland and Sweden opposed the scheme and called for low-cost loans instead. The EU Commission will publish its own proposals on Wednesday with markets watching the overall political developments very closely. The gradual easing of lockdown measures will offer a glimmer of hope, but many companies are still pessimistic.
Data to watch
13:00 - EUR - ECB Financial Stability Review
14:00 - USD - CB Consumer Confidence
Posted in Daily Market News on May 26 2020