Sterling failed to recover as markets remained uneasy over coronavirus developments with reports that the Chancellor was looking to scale-back furlough payments.

US ADP data reported a private-sector employment decline of over 20.0mn for April. Overall risk conditions were slightly more cautious, especially with underlying US-China tensions and equities overall were slightly lower.

The dollar secured a net advance against European currencies with EUR/USD near 1.0800. The yen maintained a strong tone with USD/JPY at 7-week lows of 106.00 before a limited recovery.

Sterling lost ground after very weak construction data, but pared losses after the Bank of England decided against increasing asset purchases.

Commodity currencies were resilient and secured net gains on Thursday. Scandinavian currencies secured net gains amid hopes for economic recovery.

The final Euro-zone PMI services-sector index recorded a marginal improvement to 12.0 from the flash reading of 11.7, but it was confirmed at a record low from 26.4 previously. All major economies registered record lows as lockdown measures triggered a major decline in activity. New business activity also declined sharply with overall employment declining sharply. There was also evidence that customers were re-negotiating contract prices and charges declined at the joint-highest pace on record. The decline in prices will reinforce fears of increased deflationary pressures. Euro-zone retail sales declined 11.2% for March with a 9.2% annual decline.

Overall Euro sentiment remained weak after Tuesday’s German Constitutional Court ruling on the ECB bond-buying programme. The EU Commission forecast that the Euro-zone economy would contract 7.4% this year with a 9.5% GDP decline for Italy. The report also stated that the crisis posed a threat to the Euro-zone and Euro area and EUR/USD dipped below the 1.0800 level. There were, however, positive developments in Germany with a further easing of restrictions.

US ADP data reported a decline in private-sector payrolls of 20.24mn for April following a revised decline of 149,000 for March. The slump in employment was close to market expectations and a record monthly decline by a huge margin. There were also concerns that the data could under-estimate the increase in unemployment as workers still on payrolls but not actually working are counted as employed. The Euro struggled to gain any significant relief as the dollar made net gains against commodity currencies and EUR/USD settled fractionally above 1.0800 in early Europe on Thursday.

The yen remained resilient ahead of the New York open with the dollar unable to make significant headway. Overall risk appetite was slightly more fragile following the US jobs data and USD/JPY retreated to 7-week lows near 106.00 despite an increase in US yields on the day.

There was another round of China criticism from US Secretary of State Pompeo with comments that China could have prevented the deaths of hundreds of thousands of lives around the world and that countries are starting to understand the risks of doing business with the Chinese Communist Party.

Chinese trade data was mixed with exports rising 8.2% in the year to April in yuan terms and above consensus forecasts, but imports declined 10.2%. China’s Caixin PMI services-sector index strengthened slightly to 44.4 from 43.0 previously, but was below expectations and remained in contraction territory. Order backlogs declined and export orders declined at a faster pace while employment continued to decline.

Overall risk appetite remained fragile, but USD/JPY was able to find support at the 106.00 level and consolidated around 106.25 as yen demand eased slightly.

The UK PMI construction index slumped to a record low of 8.2 for April from 39.3 and well below consensus forecasts. The extent of weakness was illustrated by the fact that the previous record low was 27.8. Many projects were suspended and companies faced major difficulties in sourcing materials due to the closure of suppliers. There is likely to be a tentative recovery next month, but there were warnings that recovery would be slow.

Sterling had already weakened in early Europe and lost further confidence after the data as underlying confidence in the outlook remained weak. There were also further underlying concerns over the government’s coronavirus policies and ability to move out of lockdown.

Sterling failed to recover as markets remained uneasy over coronavirus developments with reports that the Chancellor was looking to scale-back furlough payments. The Bank of England maintained interest rates at 0.1%. There were also no changes to the £645bn bond-purchase programme, although 2 MPC members voted for a further £100bn increase. Latest indicators suggested that activity had stabilised with household consumption around 30% lower. Inflation is set to decline to below 1% with downside economic risks to prevail.

Economic Calendar

07:00BOE MPC Vote Cut(MAY 01)-2
07:00BOE MPC Vote Hike(MAY)-0
07:00BOE MPC Vote Unchanged(MAY)99
07:00BoE QE Purchase Target(M/M)(MAY)625B645B
07:45Non-Farm Payrolls QQ-0.40%
08:30GBP Halifax HPI (M/M)(MAY)0.10%0.20%
12:00BoE Rate Decision(M/M)(MAY)0.25%0.10%
13:30Nonfarm Productivity (Q/Q)-5.40%1.20%
15:00CAD Ivey PMI(M/M)(APR)4126
20:00USD Consumer Credit(MAR)15.00B22.33B

*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.