UK Construction PMI’s for May recovered to 28.9, a great improvement on April’s 8.2 but still below forecasts of 29.7. Business sentiment remains weak despite early signs of a recovery, the sector was beset by project cancellations, supply shortages and lengthening delivery times. The Bank of England’s Andrew Hauser stated that negative interest rates wouldn’t be used in the short term, although he didn’t rule it out altogether. Global policy moves influenced the Pound's fortunes and the Euro strengthened sharply to 1.1111 after the US market opened, and the Pound strengthened to near 1.2600 against a weaker Dollar.
Consumer confidence in May fell to record lows but strong risk appetite sheltered the Pound. The Pound opened near 1.1111 against the Euro and 1.2650 on the Dollar. We’re not going negativeRhetoric emanating from UK/EU trade negotiations will be scrutinised today and could be significant to Sterling trading.
Dollar demand remained weaker yesterday seeing a break above 1.1300 against the Euro which triggered further sharp Euro buying to an 11-week peak above 1.1350 before a slight correction.
The US employment report is due later with expectations of a decline in non-farm payrolls of around 7.8 million. A lower than expected decline would tend to underpin risk appetite and potentially undermine the dollar.
GBPUSD rallied 0.5% yesterday and a further 0.4% this morning, breaking above 1.2650. EURUSD traded over 1% higher, from below 1.1250 to above 1.1370
There were no changes to interest rates at the yesterday’s ECB policy meeting but the central bank did, however, increase the total amount of the pandemic emergency purchase programme (PEPP) by a further EUR600bn to EUR1,350bn. Enabling further gains against the Dollar for the 8th successive day. ECB members also reiterated they would adopt further measures if necessary and the PEPP purchases would continue until at least the middle of 2021 compared with the end of 2020 previously. President Lagarde additionally stated that the balance of risks to the outlook were on the downside, alongside mentioning there was evidence that the economy was bottoming out. The Euro started to lose its momentum just below the 1.1350 mark.
Overall Euro sentiment remains strong as markets consider its powerful position on stimulus. There was also a delayed reaction to the German fiscal package announced earlier which amounted to EUR130bn. The combination of fiscal and monetary stimulus boosted recovery hopes.
As of writing, the Euro trades around the 1.1365 level against its US counterpart.
Data to watch
09:00 - EUR - Retail Sales
09:30 - EUR and GBP - EU - UK Brexit Talks
11:30 - EUR - Consumer Confidence
20:00 - USD - Consumer Credit Change
Posted in Daily Market News on Jun 5 2020