Marknadsövervakning - 7th May 2020

GBP/USD could not stay supported, as EUR/USD continued to weaken. In addition, UK construction PMI posted a single figure number of 8.2, way below both the 21.7 expected, and the important 50 level showing large contraction for the construction industry. GBP/EUR remained trading in recent ranges, as neither currency looks particularly attractive at the moment. This morning we have already had the Bank of England interest rate decision and inflation report, which kept interest rates and the quantitative easing programme steady. There were two votes on the monetary policy committee to increase the QE programme by GBP 100 million. The Bank added that they see GDP falling 14% in 2020 and said it stands ready to ease further. It is worth comparing this expected decline against the European Commissions expected decline for the eurozone of 7%. The UK is expected to start easing its lockdown next Monday.

ECB Muller was on the wires trying to calm the market and saying he was certainly able to show QE actions were ‘proportionate’. However, the rest of the news was all negative for the euro with the EU seeing Italy, Spain and Greece shrink economically by 9% in 2020. They also estimated Eurozone GDP would fall by 7% this year and then grow by 6.3% in 2021. The worst piece of news was an announcement from the European Commission stating that the euro area was facing the deepest downturn in its economic history, and if the crisis is badly handled, this could threaten the very future of the euro. Finally, there was good news on the pandemic, as Germany announced that it would soon start reopening the economy.

The dollar strengthened on other currencies weakness, with the pandemic news flow from the US focusing on the President and his desire to reopen the economy. He said it was time to move to phase two of the pandemic even though there may be more sickness and death. Later in the day, the President said the coronavirus was worse than the Pearl Harbour attack. Feds’ Barkin said the recovery would be slow and that the lawmakers would need to contemplate what to do next. US unemployment claims are expected to show another 3 million unemployed over the last 7 days.
The Australian trade balance grew to AUD 10.6 billion surplus, representing an improvement on last month’s AUD 3.87 billion, which helped the AUD stay supported.

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