The dollar remained on the defensive with an absence of defensive support and unease over domestic fundamentals.

Overall risk appetite has held firm with global recovery hopes dominating market sentiment at this stage and offsetting sharp second-quarter weakness.

The dollar remained on the defensive with an absence of defensive support and unease over domestic fundamentals. The currency index dipped to the lowest level since mid-March. Euro sentiment also remained firm with 10-week EUR/USD highs above the 1.1200 level.

Sterling registered net gains on some hopes for trade progress, although global risk conditions were more important as GBP/USD briefly hit 1.2600.

Commodity currencies continued to make strong headway during the day. Australian data beat market expectations with AUD/USD at 5-month highs before a correction.

After a hesitant start at the European open, the Euro moved sharply higher ahead of the New York open with EUR/USD strengthening to above 1.1150. Although there was a brief correction, the pair strengthened to 10-week highs around 1.1195 as Europe continued to ease lockdown measures.

The New York business conditions index strengthened to 19.5 for May from 4.3 the previous month, but this was still substantially below levels that prevailed before the coronavirus crisis. Overall risk appetite remained firm amid expectations of a rebound in the US economy.

The US dollar maintained a generally weak tone during Tuesday with commodity currencies posting further gains while domestic US fundamentals also remained weaker. As far as US data is concerned, the focus will switch to labour markets on Wednesday with the latest ADP jobs data and labour-markets data will also be important over the remainder of this week with the employment report on Friday.

There will be an element of caution ahead of Thursday’s ECB policy meeting with the central bank expected to introduce a further round of bond purchases. Rhetoric from bank President Lagarde will also be important for Euro sentiment. The dollar remained on the defensive on Wednesday with EUR/USD strengthening to 10-week highs just above the 1.1200 as the dollar index continued to decline to the lowest level since mid-March while overall US confidence remained weaker.

Overall risk appetite remained firm on Tuesday as markets continued to bet on a global recovery. There were further concerns over US-China tensions, especially with China threatening swift retaliation from China if there is any crackdown from the US.

Gains in US equities were relatively subdued, but there was still a notable drop in demand for defensive currencies. Oil prices also made significant headway during the day. In this environment, there was a sharp drop in yen demand during the day with sharp losses against commodity currencies. Although the dollar overall remained vulnerable, USD/JPY strengthened to above 108.50 against the yen with a high around 108.80 while EUR/JPY strengthened to highs above 121.50.

China’s Caixin PMI services index strengthened to 55.0 from 44.4 previously which was well above consensus forecasts and the strongest reading since October 2010. Although employment continued to decline, the data boosted confidence in the near-term economic outlook.

President Trump edged back from immediate threats to impose martial law which also helped underpin risk appetite, although underlying tensions remained high. Overall, both the dollar and yen remained out of favour as risk appetite remained strong with USD/JPY settling just above 108.50.

UK mortgage approvals declined sharply to 15,900 for April from 56,1000 the previous month and the lowest reading since the data series started in 1997 with the housing market effectively closed during the month. Overall consumer lending recorded a net repayment of £6.9bn for April as consumers repaid loans and also built-up cash balances.

Sterling pushed sharply higher at the European open with a brief GBP/USD move to highs above 1.2550 while GBP/EUR stalled around 1.1250. The UK currency was supported by underlying expectations of a recovery in the global economy which would provide significant underlying UK support.

Domestically, there were expectations that the Chancellor would introduce a fiscal stimulus bill next month and also introduce trade credit insurance for UK companies. There was some further speculation that the UK would make concessions in trade talks with the EU, although these reports were denied by the government. Underlying risks were illustrated by comments from Nissan that the UK manufacturing plant will be unsustainable if there is no trade deal with the EU.

Economic Calendar

Expected Previous
08:45 Markit/ADACI Svcs PMI(MAY) 9 10.8
08:50 Markit Serv PMI(MAY) 29.4
08:55 EUR German PMI Composite(MAY) 31.4
08:55 EUR German PMI Services(MAY) 31.4
08:55 German Unemployment Rate(M/M)(MAY) 6.20% 5.80%
09:00 Unemployment Rate(APR) - 8.40%
09:00 Euro-Zone PMI Composite(MAY) 30.5 30.5
09:00 Euro-Zone PMI Services(MAY) 28.7 28.7
09:30 GBP PMI Services(MAY) - 27.8
10:00 Euro-Zone PPI (Y/Y)(APR) -2.60% -2.80%
10:00 Euro-Zone PPI (M/M)(APR) -1.30% -1.50%
10:00 Euro-Zone Unemployment Rate(APR) 8.30% 7.40%
12:00 USD MBA Mortgage Applications - 2.70%
14:45 USD Markit Services PMI(MAY) - 36.9
15:00 USD Factory Orders(APR) -14.60% -10.30%
15:00 BOC Rate Statement - -
15:00 CAD BoC Rate Decision 0.25% 0.25%
15:30 USD Crude Oil Inventories - 7.928M

*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.