GBP

Following the UK’s inflation data declining to its lowest rate since August 2016 at 0.8%, there was further speculation that the Bank of England could cut interest rates into negative territory due to further declines expected in inflation in the short term.

The latest UK government 3-year bond auction also recorded a negative yield for the first time on record. Governor Bailey went on record to state that the bank would not rule out any instrument in principle. He made no direct reference to the possibility of increasing the scope of bond-buying to more risky assets and as far as negative interest rates are concerned, Bailey confirmed that a move was not ruled in or out and the evidence would have to be considered closely.

The UK business confidence data will be watched closely on today as sentiment remains fragile with Sterling falling to a 7-week low against the Euro around 1.11250 whilst still trading quite range bound against the Dollar at the 1.22 mark. 

USD

The US currency registered further sharp losses against commodity currencies yesterday. 

Minutes from April’s Federal Reserve (Fed) meeting reiterated that it was committed to using all available tools to support the economy. There were still important downside risks to the economy and inflation over the medium term. There was no support for negative interest rates with the committee considering how to strengthen forward guidance. There was a limited overall market reaction with the dollar slightly stronger given further opposition to negative rates.

The latest PMI business confidence readings for both sides of the Atlantic will be released today with markets looking at the data to assess a potential recovery path out of deep recession. The dollar regained some ground this morning as an element of defensive demand returned with the Euro around 1.0960.

EUR

The Euro-zone current account surplus amounted to EUR27bn for March from EUR38bn previously, Euro-zone flash consumer confidence reading for May recovered to -18.8 from a revised -22.0 previously and was above consensus forecasts while 12-month surplus amounted to EUR338bn and 2.8% of GDP. The strong current account position will continue to provide significant underlying Euro support.

Overall, risk appetite held firm yesterday which was important in curbing defensive Dollar demand whilst the Euro notably hit some resistance at the key psychological level of 1.1000. As of writing, the Euro trades around 1.0970against its US counterpart.

Data to watch

07:15 - EUR - French Flash Services PMI

07:15 - EUR - French Flash Manufacturing PMI

07:30 - EUR - German flash manufacturing PMI

07:30 - EUR - German Flash Services PMI

08:00 - EUR - Flash Manufacturing PMI

08:00 - EUR - Flash Services PMI

08:30 - GBP - Flash Manufacturing PMI

08:30 - GBP - Flash Services PMI

12:30 - USD - Philly Fed Manufacturing Index 

12:30 - USD - Unemployment claims 

13:45 - USD - Flash Manufacturing PMI

18:30 - USD - Fed Chair Powell Speaks