RedFX: ECB and US Fed speech up soon
EUR: After last week’s announcement by the German courts that it will NOT continue to take part in the ECB’s bond buying program, the market has been delving into the legality of the situation, and anticipating long-term outcomes. This has prompted ECB member Rehn to say that this ruling doe NOT affect the ECB bond buying program – he is clearly looking to return confidence to the shared currency, as Covid-19 takes a heavy toll on member states.
GBP: GDP data this morning was not as bad as expected, falling by an enormous 5.8% in March (the market was expecting 8%) – quarterly GDP fell by 2%, again, beating expectations. GBP/EUR at 1.1325 is testing current lows, as the UK approach to ending lockdown raises a few questions and the spectre of a 2nd wave of infections. Let’s not forget Brexit looms large as well – the deadline of the end of June for an extension is not that far away, and the UK and EU seem as far apart on ‘important issues’ as ever.
USD: All eyes on the USD this afternoon, which has been weakening slightly in lacklustre trading. Later in the day, Inflation data will be the only data featured in the US economic docket. More importantly, FOMC Chairman Jerome Powell will deliver a speech on the state of the economy at the Peterson Institute for International Economics.
With GBP/USD at 1.2300 and EUR/USD near recent lows at 1.0825, this speech could be key:
Previewing this event, “Powell is expected to categorically deny the option of setting negative interest rates and that may marginally weigh on stocks and support the dollar," said Yohay Elam. "However, if he surprises by refusing to rule out going below zero, the dollar will likely dive and stocks could surge.”
CAD: Weakening through the early part of this week as the poor oil performance took its toll once again – USD/CAD around 1.4100 a crucial level
China: Very weak inflation data may allow the Central Bank to intervene with extra easing of conditions, analysed by UOB:
“The deflation in PPI accelerated in April to the sharpest monthly drop in four years, led by the decline in prices of commodities and raw materials.”
“The easing inflation will create room for more monetary policy easing ahead as signalled in the PBoC’s Monetary Policy Implementation Report for 1Q20.”
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The RedFX team