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The Euro-zone current surplus narrowed to EUR14.4bn for April from EUR 27.4bn the previous month, although there was still a 12-month surplus of EUR334bn and 2.8% of GDP which will provide an element of background currency support. Major central banks, including the ECB, announced that they were cutting back dollar liquidity operations given a lack of demand an underlying improvement in funding conditions. Although this indicates lower underlying US currency demand, the reduction of US liquidity provision could enhance US currency gains if there is a notable slide in risk appetite.

ECB President Lagarde warned that there are market risks if there is no agreement on the recovery fund. She also warned that second-quarter GDP was liable to contract 13% with a 2020 decline of 8.7% before a 5.2% rebound in 2021. Despite Lagarde’s warnings, there was no agreement on the recovery fund at the EU Summit. This came as no surprise as leaders had warned ahead of the meeting that a deal was unlikely this month. Germany and France are exerting strong pressure for a deal by August. The dollar maintained a firm tone amid a more defensive risk tone and weakness in commodity currencies while the Euro retreated to lows near 1.1170.

CFTC data recorded a further increase in long, non-commercial positions to 117,000 contracts in the latest week and the highest level since November 2018, limiting the scope for further buying. The Euro did, however, recover some ground on Monday with a move to near the 1.1200 area despite concerns over an increase in German coronavirus cases as the dollar retreated slightly with markets continuing to monitor global coronavirus developments very closely. 


Risk appetite was generally fragile during Friday as coronavirus developments continued to cause some alarm with Florida, for example, reporting a further sharp increase in new cases to a fresh record high. Equity markets dipped lower following an announcement that Apple was closing some of its US stores once again. The US S&P 500 index declined 0.55% on the day, although there were still gains for the week. Fed Chair Powell stated that the US economy will recover, but it will take time and work. Vice-Chair Clarida stated there is more we can do and we will in view that we’re a long way from the Fed’s twin goals. Boston head Rosengren stated that unemployment would be at least 10% by the end of 2020 and considered that further monetary and fiscal support would likely be needed.

Relatively narrow ranges prevailed with the dollar settling around 106.85 as both currencies drew an element of support amid the more fragile environment.

As expected, China held interest rates unchanged with the 1-year rate at 3.85%. US equity futures posted limited gains on Monday amid hopes that coronavirus cases would tend to be more localised rather than leading to national lockdowns. The yen lost some ground on the crosses with the dollar held just below the 107.00 level.


Sterling was unable to sustain an initial moved higher following the retail sales data with underlying sentiment remaining negative amid expectations of a weak underlying recovery, especially given concerns over labour-market trends. There were also important concerns over a sharp increase in the budget deficit.

The number of new UK coronavirus cases increased slightly on Friday with evidence that the decline in cases has stalled. This development offset a recommendation from the chief medical officer that the coronavirus alert statues should be lowered to 3 from 4. The UK currency was undermined by a more fragile global risk tone and the Euro held above the 0.9000 level with 11-week highs near 0.9050 while the UK currency weakened to monthly lows near 1.2350 against the dollar.

CFTC data recorded a further decline in short, speculative Sterling positions which suggested that recent currency losses had not been triggered by hedge-fund selling which will curb sentiment. Chancellor Sunak remains under pressure to provide further stimulus with reports that there will be an emergency VAT cut. The government is also expected to announce a further easing of lockdown measures on Tuesday with the social distancing limit expected to be reduced. Sterling recovered slightly on Monday but was held below 1.2400 against the dollar while the Euro held close to 0.9050 as UK sentiment remained negative. 


The Euro was unable to make headway on Friday with the single currency retreating to the 1.0650 area while the dollar secured only a slight advance to the 0.9525 area. Unease over coronavirus developments provided an element of Swiss currency support. Confirmation that the EU had not made significant headway on the recovery fund was also a significant factor underpinning the franc. The franc was resilient on Monday with the Euro close to 1.0650 and markets will watch the latest sight deposit data to assess whether the National Bank had resumed intervention to curb currency gains.



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