The pound has weakened against the euro after yesterday morning’s optimism. David Frost, speaking to Parliament, said that the EU’s position on fisheries would still not ‘lead to an agreement’, and stated again that the UK government will not seek an extension to the transition period.
Today is a busy day for economic releases in the Eurozone, with consumer, business and service sentiment indices expected to show a small trend back towards the positive. Meanwhile, the euro has been given a small boost against the pound by proposals for a €750 billion coronavirus economic rescue scheme.
In the US, the markets are awaiting today’s GDP data, which is expected to enter negative figures. Also on the agenda for today are corporate profits, durable goods orders and speeches from Fed policy makers.
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GBP: Frost says UK won’t accept EU offer
The pound lost the gains it made yesterday against the euro as hopes were raised of a breakthrough on fisheries, after David Frost said before Parliament’s Brexit Committee that the current offer would not be ‘likely to produce an agreement’, and reiterated that the UK will not seek an extension to the transition period. Boris Johnson is expected to travel to Brussels in June to meet with EU leaders.
Andrew Bailer, the Governor of the Bank of England, has said that the UK is entering the ‘second phase’ of the crisis, although economic risks still remain significant.
The rest of this week is light on economic data, so it seems likely that movement will be largely dictated by external factors. However, we will see nationwide housing prices, expected to show an increase year-on-year but a drop based on the previous month.
EUR: European Commission proposes recovery fund
The euro was boosted yesterday by optimism over an end in sight for the EU’s internal negotiations on an economic rescue package for countries hit hard by coronavirus. Building on Macron and Merkel’s €500 billion proposal, Ursula von der Leyen is set to propose a €750 billion borrowing programme to fund grants and loans to member states.
Perhaps less positively, but not entirely unexpected by the markets, Christine Lagarde has said that the ECB’s expectations of a 5-12% contraction in the Eurozone economy is already ‘outdated’ and that the reality is likely to look more towards the upper end of those figures, at 8-12%.
Spanish retail sales have come in this morning at -20%, just above market expectations of a drop to -22% in April. With Spain slowly reopening, these figures will be expected to rise in the coming months.
USD: Markets await GDP data
The dollar has gained some ground against the pound as the latter weakened on dashed optimism over Brexit trade talks. Yesterday’s Richmond Fed Manufacturing Index showed the decline to be slowing, while mortgage applications are also up 2.7%. Nonetheless, the big news will come later today, with GDP expected to have entered contraction.
Today, we will also see jobless claims, durable goods orders, corporate profits – forecast to decline by as much as 46% – and a speech from the Federal Reserve’s John Williams, who said yesterday that, although the economy is nearing rock bottom, it is poised for ‘rebound’.