The ONS reported that GDP declined 20.4% in April compared with consensus forecasts of 18.7%.

Risk appetite dipped sharply on Thursday with markets unsettled by the negative reaction to Wednesday’s Federal Reserve statement and US coronavirus reservations. Equity markets moved sharply lower with the S&P 500 index closing 5.9% lower.

The dollar regained ground as risk appetite deteriorated with EUR/USD near 1.1300. Sterling was undermined by the weaker risk tone with worse than expected April GDP data reinforcing selling pressure and GBP/USD below 1.2600.

Commodity currencies also registered sharp losses on the day with AUD/USD lows near 0.6800.

Italian industrial production declined 19.1% for April following a 28.4% for the previous month with a shocking 42.5% annual slide from 29.5% previously and slightly worse than consensus forecasts of a 40% decline. The data reinforced concerns over the Italian outlook and wider Euro-zone stresses.

The Euro lost territory ahead of the New York open, although overall losses were limited as underlying dollar sentiment also remained negative.

US initial jobless claims declined to 1.54mn in the latest week from a revised 1.90mn the previous week. This was slightly below consensus forecasts and the lowest reading for 12 weeks, although claims remained substantially higher than pre-covid levels. Continuing claims declined slightly to 20.9mn from 21.3mn, but were above consensus forecasts, maintaining the element of uncertainty over the May employment report.

Producer prices increased 0.4% on the month with the year-on-year decline held at 0.8% while core prices increased 0.3% on the year.

After hitting lows around 1.1325, EUR/USD recovered ground, but hit selling interest on approach to 1.1400. There was an element of caution ahead of the Eurogroup meeting later in the day, although there were no significant developments and the dollar gradually regained ground.

Risk appetite continued to deteriorate after the European close with commodity currencies weakening further. The dollar gained a notable element of defensive support as risk appetite deteriorated and EUR/USD retreated to below 1.1300 before regaining some ground to trade just above this level in early Europe on Friday.

Bank of Japan Governor Kuroda stated that the central bank was ready to take all necessary steps to combat coronavirus fallout with the protection of businesses and jobs the most vital things to do. The overall impact was limited with markets expectations that policy overall would be unchanged next week.

US Treasury Secretary Mnuchin stated that the economy can’t be shut down again as this would cause more damage.

Risk sentiment was undermined by an increase in Florida covid-19 cases of 2.5% for the day, above the 7-day average of 2.0% and cases also increased in Texas. The weaker risk tone was important in providing renewed yen support.

The dollar overall continued to drift lower with a USD/JPY retreat to lows near 106.60 in early New York. Equity markets continued to decline with a sharp decline in the S&P 500 index of close to 6.0%, but the dollar found wider support and USD/JPY advanced to the 106.90 area at the New York close.

Asian equity markets declined, but US futures recovered which provided an element of relief and USD/JPY traded around 107.15 at the European open.

Sterling had posted its longest sequence of gains against the dollar since the start of 2018, but the UK currency lost ground sharply on Thursday. Overall global market conditions were the dominant market influence during the day. Underlying risk appetite weakened which was an important factor undermining UK currency support.

There were also underlying concerns over the outlook, especially with EU trade stresses. There was also an element of trepidation ahead of GDP data for April due on Friday. GBP/USD dipped to below 1.2650 in Europe while GBP/EUR weakened to test the 1.1100 level. Risk conditions dominated with weakness in equity markets pushing Sterling lower. There was a further GBP/USD dip to below 1.2600, although the Euro also retreated.

UK Prime Minister Johnson and EU Commission President von der Leyen have agreed to intensity trade negotiations with a further meeting due on June 15th while a transition extension is likely to be ruled out formally by the UK on Friday. There were also reports that border checks from 2021 would be scaled back. The ONS reported that GDP declined 20.4% in April compared with consensus forecasts of 18.7% with a 10.4% decline in the 3 months to April. Industrial production declined 20.3% and there was a slump in construction output of 43.6%, but the trade deficit narrowed.

Economic Calendar

07:00GBP Industrial Production (Y/Y)(APR)-19.30%-8.20%
07:00GBP Industrial Production (M/M)(APR)-15.00%-4.20%
07:00GBP Manufacturing Production (M/M)(APR)-15.80%-4.60%
07:00GBP Manufacturing Production (Y/Y)(APR)-19.90%-9.70%
07:00GBP Trade Balance(APR)-11.62B-11.85B
07:00GBP Trade Balance Non EU(APR)-4.00B-4.42B
10:00Euro-Zone Industrial Production (M/M)(APR)-11.30%
10:00Euro-Zone Industrial Production (Y/Y)(APR)-12.90%
11:00The Eurogroup Meeting
13:30USD Export Price Index (M/M)(MAY)0.1-3.3
13:30USD Import Price Index (M/M)(MAY)-0.20%-2.60%
15:00USD Michigan Consumer Sentiment(JUN 01)7572.3

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.