17/06/2020

Risk weighs on Sterling


GBP

Sterling had a mixed day against both the EUR and USD yesterday, rallying during early trade but finishing the day lower as risk sentiment weighed on the GBP.

The initial rally in sterling was a result of a positive UK unemployment data. The unemployment rate managed to hold firm at 3.9% in the three months to April beating expectations of a 4.7% rise in unemployment. It’s likely that the positive unemployment figures are a result of businesses opting to utilise the government’s furlough scheme to retain jobs.

Despite sterling’s early rally, the GBP reversed gains in the afternoon due to a shift in market sentiment back to risk-off. This can be attributed to rising coronavirus infections and increased tensions in Asia which has led to a flurry of safe-haven movement.

Along with the US, China have seen a rise in coronavirus infections this week which has led to Beijing cancelling close to 1200 flights, quarantining certain parts of the city and shutting all of its schools again.

In addition to this, rising tensions between North Korea and South Korea have caused caution amongst investors following reports that North Korea destroyed a liaison office with the south.

USD

The USD rallied against a basket of currencies on Tuesday buoyed by safe-haven demand and a record rise in US Retail sales for the month of May.

US Retail Sales for the month of May jumped to 17.7% beating forecasts of 8%, increasing hopes amongst investors that the worlds biggest economy is on the road to an economic recovery. The increase in Retail Sales was its biggest jump since 1992.

Despite the record rise in Retail Sales, Federal Reserve Chair Jerome Powell called for caution adding that the Fed expect output and unemployment to remain well below pre-pandemic levels for a lengthy period of time and that the need for more policy support would likely increase.

Key announcements

07:00 – GBP – Consumer Price Index (YoY) (May) in line with expectations 0.5%
10:00 – EUR – Consumer Price Index (YoY) (May)
17:00 – USD – Fed Chair Jerome Powell testifies


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