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French industrial production declined 20.1% in April which was close to consensus expectations. The Euro maintained a firm tone in early trading and pushed higher as the US dollar came under renewed pressure and declined to 3-month lows. The single currency pushed to fresh 11-week highs near 1.1390 ahead of the New York open before a slight correction. ECB vice-president de-Guindos stated that the May survey shows some sign of the economy bottoming out.

US consumer prices declined 0.1% for May which was in line with consensus expectations with the year-on-year rate declining to 0.1% from 0.3%. This was slightly below consensus forecasts of 0.2% and the lowest reading in October 2015. Core prices also declined 0.1% on the month with the annual rate declining to 1.2% from 1.4% and the lowest reading since April 2015. The dollar edged higher ahead of the Fed policy decision with the Euro drifting lower on position adjustment.

The Fed held interest rates in the 0.00-0.25% range, in line with consensus forecasts. It reiterated that the coronavirus will weigh heavily on economic activity, employment and inflation in the short term and the central bank will use all available tools to support the economy. GDP was projected to decline by 6.5% for 2020.

The Fed stated that it would increase its holdings of Treasuries and mortgage-backed securities over coming months at least at the current pace.

The latest median forecasts from individual committee members indicated that the Fed Funds rate was expected to remain at zero until the end of 2022. The dovish rate forecasts were a key element pushing the dollar weaker in immediate reaction with the Euro advancing to fresh 3-month highs in the 1.1420 area.

Chair Powell was generally dovish, reiterating no possibility of even thinking of a rate hike, but he also stated that yield-curve control was still an open question. There were also no projections of negative interest rates. The dollar rallied on the commentary with the Euro back below 1.1400. Powell was also broadly downbeat over the outlook and commodity currencies retreated. The Euro retreated to just below 1.1350 on Thursday amid the more cautious risk tone and a wider US dollar recovery. 


The yen maintained a firm tone ahead of the New York open with the dollar unable to make headway. US yields moved lower following the US CPI data which further eroded US currency support and it retreated to lows just below 107.20 against the Japanese currency. According to sources, the Bank of Japan does see a pressing need for major action at next week’s policy meeting. The report also indicated the potential for greater flexibility in managing the yield curve.

US Treasuries secured further gains following the Fed announcement and the dollar dipped to test the 107.00 area amid wider losses. The US currency recovered slightly, but the yen maintained a firm tone as US equity markets retreated. Risk appetite retreated on Thursday following the cautious Fed outlook which underpinned the Japanese currency and the dollar was just above the 107.00 level after finding support below this level with the Euro around 121.50. 


The OECD projected that UK GDP would decline by 11.5% for 2020, the worst performance within major economies, with major vulnerabilities due to the dominance of series within the economy. In the event of a second spike, the GDP decline could be around 14%. Despite the OECD report, Sterling maintained a firm tone and hit 1.2800 against the dollar. Bank of England Governor Bailey stated that there were elements of the recovery starting, but there will be an element of natural caution by people after the lockdown ends. EU chief negotiator Barnier reiterated that there cannot be a deal with the UK without agreement on fishing and a level playing field. He also stated that the relationship with the UK will not be the same as with Canada and Japan while the CBI warned that a no-deal trade outcome must be avoided.

Sterling was resilient and pushed to fresh 3-month highs above 1.2800 against the dollar after the Fed statement while the Euro made net gains to 0.8930. The UK RICS housing index declined to -32 from -22 previously, the weakest reading since early 2011. With overall risk appetite weaker, Sterling retreated sharply to below 1.2700 with the Euro strengthening to the 0.8950 area as fragile domestic sentiment was more exposed given a dip in global risk confidence. 


The Swiss franc maintained a firm tone ahead of the New York open and secured a further advance ahead of the New York open. The Euro retreated to lows around 1.0730 while the dollar dipped to 4-month lows just below 0.9450. Demand for defensive assets tended to increase after the Fed policy decision with expectations over an extended period of zero interest rates among major central banks boosting demand for the gold, yen and Swiss franc. The dollar retreated to the 0.9425 area before a slight recovery to 0.9450 on Thursday with the Euro around 1.0715 amid the more fragile risk conditions.   



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