Sterling was again broadly resilient with support from the firmer risk tone.

US equity markets made further gains on Friday amid hopes for an easing of lockdown restrictions. There was a more cautious tone on Monday. The dollar lost some ground late in Europe on Friday, although there were limited overall net gains as confidence in other majors remained limited.

Sterling was again broadly resilient with support from the firmer risk tone, although GBP/USD failed to hold 1.2500 and the UK currency faded slightly on Monday.

Commodity currencies drifted lower on Monday amid a more subdued risk tone and fears over damage to the global economy. The yen and Swiss franc remained resilient despite equity-market gains with EUR/CHF holding close to 4-year lows.

There were further hopes that EU countries would gradually relax lockdown restrictions over the next few weeks. The difficulties in securing any kind of normality was, however, illustrated by comments from the Austrian government that large events will remain banned until the end of August.

Overall, markets continued to fret over the risks that political divisions between the national governments would undermine efforts to support the economy, especially after critical comments from French President Macron, and short-term economic damage will continue to intensify.

The Euro remained under pressure ahead of the New York open with EUR/USD lows just below 1.0820. There was, however, a reversal in US trading as the dollar lost traction with EUR/USD strengthening to the 1.0880 area with some pre-weekend position adjustment.

The Federal Reserve announced that it will slow the pace of bond purchases next week to $15.0bn per day from $30.0bn the previous week which provided an element of dollar support late in the New York session, although net purchases are still significantly larger than seen during the financial crisis.

CFTC data recorded a further net increase in long Euro positions to 87,000 contracts from 80,000 the previous week and the Euro will be vulnerable if these positions are scaled back. The data overall suggested little underlying change with a reluctance to engage in aggressive positioning due to the extreme level of uncertainty. The dollar made limited gains on Monday amid a more cautious tone surrounding risk appetite with EUR/USD trading around 1.0850.

US equities continued to make strong headway on Friday with the S&P 500 index making gains of 2.7%. There was overall optimism that US lockdown measures would start to ease with little overall impact from unease over further friction between President Trump and state governors. US yields moved higher after the Fed announced a reduction in bond buying plans, but the US currency was unable to gain significant support and USD/JPY settled around 107.50.

Trump stated that a deal on further economic stimulus could be secured on Monday even with congressional bickering. There was also an announcement that some tariff payments were be postponed which would free-up cash reserves. The Chinese central bank cut the 1-year prime lending rate to 3.85% from 4.05% which was a slightly larger than expected reduction with the 5-year rate cut to 4.65% from 4.75%. Japanese exports declined 11.7% in the year to March, maintaining underlying concerns over the outlook. Risk appetite remained subdued during the Asian session with USD/JPY around 107.80 amid a generally firm US tone.

Dollar demand by UK financial institutions at the daily auction increased to a 2-week high of $5.0bn on Friday, illustrating that there were still important underlying stresses. Bank of England Governor Bailey stated that large and small companies will need fresh equity and he also criticised the government over the loan programme for companies and stated that help needed to be provided faster. Bailey also stated that the government had not yet used its increased borrowing facility with the central bank. According to Bailey, the central bank would set out its views on the economic damage during May.

The UK government continued to insist that it would not ask for an extension to the Brexit transition period with fears that underlying uncertainty would have a negative Sterling impact over the next few weeks with talks due to resume on Monday.

The UK currency was, however, resilient during the day and GBP/USD tested resistance above 1.2500 as the dollar lost ground. It closed around this level with GBP/EUR settling just below 1.1500 and close to 5-week highs. The Rightmove house-price data was released although it warned that it was unable to provide meaningful data with the housing market effectively not functioning. Not surprisingly, the British Retail Consortium reported that there had been an 83% decline in the number of people going out to shop.

Economic Calendar