Today’s Currency News: Pound Fluctuates, US Dollar Responds to Shifting Risk Appetite

Pound Fluctuates as UK Borrowing Surges

At the close of last week UK government borrowing rose to its highest level on record in April, reflecting the impact of the Covid-19 lockdown.

With borrowing already hitting the Office for Budget Responsibility’s (OBR) forecast for the entire fiscal year, confidence in the economic outlook naturally diminished. That being said, the Pound was able to hold onto a generally positive footing against many of the majors as investors bet that this increase in debt will help to shore up the UK economy in the months ahead.

Influential UK data is lacking this week, with only the final CIPS manufacturing PMI and mortgage approvals data to focus on.

Rising Odds of June ECB Action Dents Euro

Support for the Euro diminished in the wake of the release of the European Central Bank’s (ECB) latest set of meeting minutes as policymakers indicated that they are ‘fully prepared’ to implement further stimulus in June.

However, yesterday’s German IFO business climate index lent the euro some support by showing a slight improvement, with the gauge rising from 74.2 to 79.5.

US Dollar Benefits as Safe-Haven Demand Returns

With market risk appetite diminishing once again the US Dollar returned to a stronger footing against its rivals ahead of the weekend.

Increasing anxiety over the outlook of the global economy and the possibility of an extended downturn in activity encouraged investors to pile back into the safe-haven US Dollar.

However, risk appetite returned on Monday in response to positive Covid-19 headlines and a rally in global equities. Today’s US data includes the CB consumer confidence index, new home sales figures and the Chicago Fed National Activity Index.

Latest Oil Price Decline Drags on Canadian Dollar

Confirmation that Canadian retail sales dropped sharply in March, even before the brunt of the impact of the Covid-19 crisis, left CAD exchange rates under pressure.

A fresh slump in oil prices added to the bearish mood of the Canadian Dollar during Friday’s European session.

Without a rally in oil prices the Canadian Dollar could remain under pressure at the start of the week.

Australian Dollar Slips as China Abandons GDP Target

As China opted not to set a gross domestic product target for the current year a sense of renewed risk aversion gripped markets. The move appeared to be an acknowledgement of the pressures facing the world’s second largest economy as a result of the Covid-19 crisis.

With investors seeing less chance of an imminent v-shaped recovery in growth and trade the mood towards the risk-sensitive Australian Dollar soured.

However, the Australian Dollar returned to a positive footing at the start of this week as risk appetite picked up.

New Zealand Dollar Slides as Retail Sales Fall

First quarter New Zealand retail sales data proved disappointing, showing a surprise -0.7% contraction on the quarter. News that consumer spending had already started to drop before the main impact of the Covid-19 pandemic hit left the New Zealand Dollar lacking in support on Friday.

The New Zealand Dollar continued struggling despite the release of better-than-forecast domestic trade data.

New Zealand’s April month Trade Balance grew from $722M to $1,267M on a MoM basis.

Louisa Heath

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