Market concerns over US coronavirus increased further and risk appetite declined on Friday as cases in key southern states increased.

Market concerns over US coronavirus trends increased further and risk appetite declined on Friday as cases in key southern states increased further. US equity markets registered significant losses with global confidence fragile as global coronavirus cases passed 10 million.

The dollar made net gains on Friday as it secured defensive support before losing ground on Monday as concerns over the US economy increased. EUR/USD edged higher to 1.1250 on Monday from Friday’s lows below 1.1200. Sterling lost ground amid negative sentiment and concerns over the global trade outlook with GBP/EUR posting 3-month lows.

Commodity currencies lost ground as equities retreated and the US dollar gained ground, although with a limited recovery on Monday as the US dollar slipped.

US personal spending increased 8.2% for May following a revised 12.6% decline the previous month, although this was below market expectations of a 9.0% increase. Personal income declined 4.2% following the 10.8% increase the previous month reflecting the impact of last month’s personal payments from the Federal government.

The core PCE prices index increased 0.1% on the month with the year-on-year rate static at 1.0%. The dollar was able to secure significant defensive support despite concerns over US fundamental developments while commodity currencies retreated sharply. Overall, EUR/USD dipped to below the 1.1200 level before stabilising late in US trading. The dollar will tend to gain if defensive demand dominates, but lose ground if US fears intensify and global recovery hopes continue.

The St Louis Fed deflation-risk index hit the highest level since 2008, maintaining strong pressure for an extremely accommodative monetary policy.

CFTC data recorded a further small increase in long non-commercial Euro positions to the highest level since May 2018, limiting the scope for further buying interest.

Over the weekend, the German constitutional Court stated that the Bundesbank could determine whether it continued to engage in bond buying which will offer some relief. According to sources, German Chancellor Merkel and President Macron will not present a new recovery fund proposal and will concentrate on garnering support for the existing proposals. The US currency edged lower on Monday with EUR/USD advancing to the 1.1250 area with markets also watching month-end trends.

Equity markets held steady into Friday’s New York open, but confidence then dipped again on the latest US coronavirus developments. Florida reported that the number of new daily infections had increased 7.8% compared with the 7-day average of 4.1%. The Texas Governor also declared a state of emergency in Harris County.

China warned that US pressure could jeopardise the purchase of US exports. US 10-year yields declined to below 0.65% and the lowest level since June 1st which reinforced the downbeat risk tone. The dollar was, however, resilient as it gained an element of defensive support and USD/JPY traded just above the 107.00 level.

China’s industrial profits data provided some relief with an increase of 6% in the year to May after a 4.3% decline previously, the first increase for six months.

There was a small decline in new Texas infections for Sunday, although cases often tend to decline during the weekend. The number of global coronavirus cases increased to above 10 million and China’s Global Times issued called US actions on coronavirus irresponsible. Japan’s retail sales declined 12.3% in the year to May. Equity futures edged lower on Monday with USD/JPY holding just above the 107.00 level with the yen unable to gain robust defensive support.

On Friday, UK Chancellor Sunak stated that the UK is pass the acute phase of the crisis while the furlough scheme will not be sustainable. A key market focus will be on labour-market developments once the furlough scheme starts to unwind. Overall Sterling sentiment remained negative with a significant element of caution ahead of next week’s trade negotiations with the EU. A weaker global risk tone and concerns over the international economic outlook was also a key factor undermining support.

Prime Minister Johnson will pledge this week not to return to austerity in the aftermath of the coronavirus crisis and will look to accelerate infrastructure projects. EU trade talks will be a key focus this week with more intense face-to-face negotiations getting underway. Ahead of the talks, Johnson repeated the threat to quit the EU on Australia terms, but negotiators also stated that an outline deal was achievable during the summer. There is likely to be choppy Sterling trading, especially with month-end pressures also a significant focus over the next 48 hours.

Economic Calendar

09:30GBP Consumer Credit(MAY)-4.500B-7.399B
09:30GBP Mortgage Approvals(MAY)-15.85K
10:00Euro-Zone Consumer Confidence(JUN)--
13:00Germany CPI (M/M)(JUN)-0.10%-0.10%
13:00Germany Harmonised CPI (M/M)(JUN)-0.10%0.40%
13:00Germany CPI (Y/Y)(JUN)0.60%0.60%
13:00Germany Harmonised CPI (Y/Y)(JUN)0.50%0.50%
13:30CAD RMPI (M/M)(MAY)--13.40%
15:00USD Pending Home Sales (M/M)(MAY)--21.80%
15:00USD Pending Home Sales (Y/Y)(MAY)-69.00%
15:30USD Dallas Fed Manufacturing Business Index(JUN)--49.2

*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.