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German GDP contracted 2.2% for the first quarter of 2020 which was in line with expectations with the year-on-year decline at 1.9% from +0.2% previously. The flash Euro-zone first-quarter reading was confirmed at a contraction of 3.8% with a year-on-year decline of 3.2%. ECB President Lagarde reiterated that the central bank was committed to doing everything needed within its mandate. Fitch affirmed the French credit rating at AA, but lowered the outlook to negative from stable.

US retail sales declined by a record 16.4% for April compared with expectations of a 12.0% decline and underlying sales dipped sharply by 17.2%. There were declines across all sectors except online selling with sales at clothing and food and drink outlets particularly badly hit.

The May New York Empire manufacturing index recovered to -48.5 from -78.2 and above market expectations of -63.0, although this was still the second-worst reading in history and output continued to contract rapidly. The rate of job losses was, however, limited and companies were more optimistic over the outlook. Elsewhere, April industrial production declined 11.2% while the University of Michigan consumer confidence index recovered to 73.7 from 71.8 previously.

Following the retail sales data, estimates suggested second-quarter GDP could contract at least 40% on an annualised basis. The Euro posted gains after the data with a peak near 1.0850 against the dollar, but the US currency gradually regained ground, especially with sharp losses for commodity currencies underpinning the dollar.

The latest CFTC data recorded very little change in overall speculative positioning as has been the case over the past few weeks, although there was still a substantial long Euro position which will tend to limit the scope for single-currency gains. The dollar edged lower on Monday with the Euro close to 1.0820.


Confidence in the global economy remained weak which limited potential selling pressure on the yen during Friday and the dollar consolidated around 107.00 after finding support just below this level. There were further concerns over US-China relations-following reports that the US was looking to restrict Chinese company Huawei’s access to US chipset technology and import-export controls. The Chinese Commerce Ministry stated that it strongly opposed the move and will take all necessary measures to safeguard the rights of companies. There were further concerns over deteriorating US-China relations which hampered risk appetite.

In comments on Sunday, Fed Chair Powell stated that the economy would recover steadily through the second half of 2020, but that it would take a while to get back all the GDP lost and recovery may stretch through the end of next year, especially as recovery needs people to feel confident about the virus and safety.  Powell also insisted that the Fed was not out of ammunition and could do a lot more with the lending programme. It was committed to doing everything it can as long as it takes. Japanese GDP declined 0.9% for the first quarter of 2020 compared with consensus forecasts of 1.1%. The dollar overall was held in narrow ranges around 107.15.


Sterling sentiment remained weak during Friday with an absence of positive fundamentals. There were further concerns over the trade outlook following completion of the latest round of EU/UK talks on the future relationship. UK Chief negotiator Frost stated that little progress had been made and that the potential for a wide-ranging free-trade agreement was being held up by unreasonable the EU demands in the area of access to UK markets and fishing. EU chief negotiator Barnier stated that the UK demands were unrealistic and warned over potential stalemate while the UK threatened to walk away from the talks. With unease over the coronavirus strategy, the Euro strengthened to 3-month highs near 0.8950 as the UK currency lost ground while Sterling also declined to 7-week lows around 1.2100 against the dollar.

In comments over the weekend, Bank of England Chief Economist Haldane stated that the central bank needed to look at further options including negative interest rates and buying riskier assets through the bond-buying programme, although he also did not want to suggest that the bank was poised for action on any of these options. Overall sentiment remained weak and Sterling dipped to lows near 1.2075 against the dollar before a slight recovery amid firmer risk conditions.


The Euro was unable sustained intra-day gains on Friday and retreated to the 1.0510 area as a dip in risk appetite triggered fresh franc demand. The dollar did find support close to 0.9700, but failed to hold limited gains as confidence in the global outlook remained fragile. There was further speculation that the National Bank could decide to stop protecting the 1.0500 area against the franc which would risk substantial franc buying and market turbulence.  National Bank member Maechler stated that the 1.05 level was not the new informal limit. The Euro did hold just above this level on Monday despite underlying tensions with the dollar close to 0.9720.




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