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The Euro was unable to make headway ahead of the ECB policy decision. There were no changes to interest rates at the policy meeting with the refi rates held at 0.0%. The central bank did, however, increase the total amount of the pandemic emergency purchase programme (PEPP) by a further EUR600bn to EUR1,350bn. The bank also reiterated that it 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. There was a sharp downgrading of the 2020 GDP forecast to -8.7% from 0.8% in March with a recovery of 5.2% projected for 2021. The 2020 CPI inflation rate forecast was lowered to 0.3% from 1.1% previously with the 2021 projection cut to 0.8% from 1.4%.

President Lagarde stated that the balance of risks to the outlook were on the downside, although she also stated that there was evidence that the economy was bottoming out. The Euro lost ground after downbeat economic projections but held above 1.1200 in choppy trading.

Overall Euro sentiment strengthened sharply later in Europe as markets considered the powerful market 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.

Overall dollar demand remained weaker and the Euro made significant gains. A break above 1.1300 triggered further sharp Euro buying an 11-week peak above 1.1350 before a slight correction. The Euro maintained a strong tone on Friday as sentiment held strong. The US employment report is due later on Friday with expectations of a decline in non-farm payrolls around 7.8 million. A lower than expected decline would tend to underpin risk appetite and potentially undermine the dollar. German factory orders declined 25.8% for April compared with expectations of -19.7%, but the Euro continued to advance to near 1.1370 as commodity currencies made further gains. 


Overall risk appetite was little changed ahead of the New York open as US equity futures edged lower. Markets moved higher at the New York open. US jobless claims declined to 1.88mn in the latest week from 2.13mn previously, although this was above consensus forecasts of 1.80mn while continuing claims increased to 21.5mn from 20.84mn as weekly volatility continued. The April trade deficit increased to $49.4bn from $42.3bn the previous month as exports declined sharply to a 10-year low.

Both the dollar and yen tended to lose ground during the day as confidence in a global recovery sapped demand for both currencies. Although US equities drifted lower, the yen continued to lose support with the dollar advancing to highs near 109.20 while the Euro strengthened sharply to highs near 124.00.

There were still underlying concerns over US-China tensions with reports that President Trump was looking to take further action against China. Equity markets held firm, however, with Asian markets posting the strongest weekly again for 9 years amid optimism over the global recovery. With demand for both currencies remaining weak, the dollar traded around 109.15 against the Japanese currency. The Euro strengthened further to 13-month highs around 124.25 against the yen. 


The UK PMI construction index recovered to 28.9 for May from 8.2 previously, but this was below expectations of 29.7 and the second-lowest reading in history. Despite a limited recovery, overall business sentiment remained weak amid cancellation of projects while there were also notable supply shortages and lengthening delivery times which hampered the sector. Bank of England executive director Hauser stated that negative interest rates would not be used in the short term, although the policy was not ruled out as a policy tool. Global policy moves tended to dominate Sterling moves as the Euro moved sharply higher after the New York open. The single currency strengthened to near 0.9000 while Sterling strengthened to near 1.2600 as the dollar lost ground.

UK consumer confidence declined to record lows for May, although robust risk appetite provided underlying Sterling protection. Trade rhetoric following the UK/EU trade negotiations will be important for Sterling later on Friday. The Euro held around 0.9000 in Europe with the UK currency near 1.2650 against the weak dollar.


Swiss consumer prices were unchanged for May with the CPI inflation rate declining to -1.3% from -1.1% previously and the lowest rate since February 2016. The fresh decline into negative territory will reinforce National Bank concerns over deflation risks and maintain an expansionary policy. The Euro secured a fresh advance amid wider gains with a move to 20-week highs above 1.0850. The Euro faded slightly later in the New York session while the dollar retreated to lows below 0.9550. A favourable reaction to the ECB policy limited franc demand, although with the Euro near 1.0850 on Friday as defensive franc demand remained weaker.



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