05/06/2020

Safe haven weakness continues


GBP

Sterling rose to ten week highs against the USD on Thursday benefitting from a weaker USD, but lost ground on the EUR.

With further economic stimulus expected to be implemented globally, hopes of a global economic recovery have encouraged investors to diversify their portfolios by selling some of their “safe” USD positions in favour of more riskier assets. This risk-on move has been the main cause of USD weakness.

Despite moving higher against the USD, the GBP has struggled to gain any significant momentum against the EUR with traders remaining cautious on the GBP amidst reports that the ongoing final round of EU-UK trade negotiations will end in disappointment. EU and UK officials have briefed sources in the media saying the two sides remain far apart on core topics including the level playing field for businesses and access to the UK’s fishing waters.

In addition to this, a survey released by GFK, showed British consumer confidence slipping to -36 in the second half of the month, its lowest level since the global financial crisis. According to the survey consumers are concerned of the threat of falling house prices and a rise in unemployment caused by the coronavirus crisis.

EUR

The EUR moved to ten week highs against the USD on Thursday after the European Central Bank expanded its bond buying programme in an attempt to help the Eurozone economy recover from the expected downturn caused by the coronavirus.

At its latest policy meeting, the European Central Bank made no changes to its interest rate keeping it on hold at 0%. However, the ECB did announce a €600bn increase to its pandemic emergency purchase programme taking their overall commitment to €1.350 trillion.

ECB president Lagarde gave an explanation for the further stimulus, stating that information indicated an unprecedented contraction in the Eurozone with its labour market deteriorating rapidly.

Euro sentiment was also boosted by the €130bn fiscal package announced by the German government Wednesday evening.

Key announcements

USD – 12:30 – Non-Farm pay rolls (May)
USD – 12:30 – Average hourly earnings (YoY) (May)
USD – 12:30 – Unemployment rate


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