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The German Finance Ministry reported that the budget deficit was likely to be around 7.25% of GDP this year and the Euro was initially held in narrow ranges.

The New York Empire manufacturing index recovered strongly to a 4-month high of -0.2 from -48.5 previously and above consensus forecasts of -30.0. There was a strong recovery in the new orders index, although unfilled orders continued to decline at a significant pace. Employment declined at a slower pace while the workweek continued to decline. There was a sharp improvement in the six-month outlook to a 10-year high.

Kansas City Fed President George stated that it was worth considering more fiscal stimulus to aid the recovery while Dallas President Kaplan stated that most forces will be deflationary over the next two years. The Euro was able to find support above Friday’s lows near 1.1220 and gradually gained ground to trade near 1.1280 as equity markets pared losses and the US dollar lost defensive support. There were further hopes that the EU would agree to a recovery plan this week.

After the European close, the Federal Reserve announced that it would start buying corporate bonds directly rather than through Exchange Traded funds. It also stated that it would buy bonds directly from issuers in the near future. This announcement triggered fresh equity buying and a further decline in dollar demand which pushed the Euro above 1.1300. The US currency continued to lose ground on Tuesday and commodity currencies strengthened with the Euro near 1.1340.


Ahead of the New York open there were comments from Beijing Commerce Ministry that China’s foreign trade faces increasing uncertainties, together with complex and severe risks as well as challenges in 2020 which reinforced market caution surrounding risk conditions. Beijing also announced that plans to re-open entertainment venues had been halted. Equity markets regained some ground, however, which limited potential defensive yen demand and the dollar was able to resist losses without being able to make any headway. The Japanese currency weakened further as equity markets strengthened after the Fed’s announcement of increased bond buying.

The Bank of Japan held interest rates at -0.1% and continued to target levels around 0% for the 10-year bond yield. The bank announced an increase in the special coronavirus lending programme to JPY110trn from JPY75trn and also stated that the economy was in an increasingly severe state.

Equity markets continued to gain strongly and tended to overshadow on-going concerns over the Beijing coronavirus situation. With demand for the dollar and yen both weaker, the US currency settled around 107.50 with net yen losses on the main crosses.


According to the EU Commission, parties noted the UK’s decision not to request an extension of the transition period and it will end of December 31st 2020. There were generally upbeat comments from EU Commission head Von der Leyen and talks will be intensified, but underlying caution over trade issues persisted.

Sterling came under renewed pressure in early Europe amid the fragile risk tone, but it gradually regained ground as equity markets pared losses. The recovery back above 1.2500 against the dollar and the Euro’s inability to hold above the 0.9000 level was also significant in underpinning UK currency demand.

Sterling consolidated around 1.2550 against the dollar at the European close and moved higher as the Fed announced the bond-buying plan with the Euro near 0.8980.

Sterling made further gains in Asia on Tuesday with a move above 1.2650 against the dollar. The UK unemployment rate held at 3.9% in the three months to April, below market expectations of 4.7% and employment posted a slight gain. There was, however, a further surge in unemployment jobless claims of 528,000 following an increase of 857,000 previously and above market expectations of around 400,000 and the total number of hours worked declined sharply. Sterling edged lower after the data but held above 1.2650 against the dollar with the Euro just above 0.8950 as the buoyant risk tone continued to underpin the UK currency.


Swiss sight deposits declined slightly to CHF679.5bn in the latest week from CHF680.1bn the previous week. This was the second successive weekly decline and again indicated that the National Bank had not been intervening to restrain the Swiss currency in the latest period.

The Euro was able to resist selling pressure against the Swiss currency and settled just above this level with the dollar just below 0.9500. Overall franc losses were initially limited despite the recovery in equities. There was, however, more substantial franc selling after the Fed corporate bond-buying programme was announced. The Euro strengthened to the 1.0760 area with the dollar around 0.9490 as the US currency lost traction.



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