Pound Plummets on Brexit Row; NZD, AUD, Risk Appetite Sours

Summary: The British Pound took a hammering to its lowest since March 26, plummeting to 1.2080 in early Sydney. Sterling closed 1.25% lower at 1.2105 on Friday in New York from its opening of 1.2230. Brexit negotiations on a new partnership between the UK and the EU were “disappointing” according to Michel Barnier, chief negotiator for the European Union. The talks were already on their third week. The US Dollar was generally stronger with Sterling and risk currencies bearing the brunt. The Kiwi led the slide New Zealand’s April Business Manufacturing Index slumped to 26.1 from 38 in March and 53.7 in February. Last week the RBNZ doubled its QE which pressurised New Zealand’s Kiwi. The Aussie Dollar slumped 0.94% to 0.6415 (0.6465 Friday) as Australia faced its own trade challenges with China. Tensions between the US and China ratcheted higher with both protagonists threatening to expand their nuclear arsenals. Against the safe-haven Yen, the Dollar dipped to 107.15 (107.26 Friday). The Euro was little changed, closing at 1.0820 from 1.0810.

ForexFactory US Retail Sales - 18 May 2020
ForexFactory US Retail Sales – 18 May 2020

Wall Street stocks retreated at the close. The DOW finished down 0.08% to 23,660 while the S&P 500 was trading at 2,860 (2,856).
Other data released Friday saw China’s Retail Sales fall to -7.5%, underwhelming forecasts at -5.9%. China’s Unemployment Rate rose to 6.0% in April from 5.9% (March) and expectations of 5.8%. the Eurozone’s GDP contracting to -3.8%, matching forecasts at -3.8%. US Headline Retail Sales fell to -16.4% in April from -8.7% previously, worse than expectations of -12.0%. Core Retail Sales plunged to -12.2% from -4.5%, underwhelming forecasts at -8.6%.
US Industrial Production for April contracted to -11.2% slightly better than forecasts of -11.3%. US Empire State Manufacturing Index slipped to -48.5, bettering expectations of -65.0.

On the Lookout: Economic data reports from the US were mostly better-than-expected apart from the important Retail Sales numbers. On Friday US bond yields edged up with the benchmark 10-Year treasury rate at 0.64%. The week ahead sees another economic data deluge with UK Employment, UK Retail Sales as well as Global Flash Manufacturing and Services PMIs, as well as several central bank heads speaking. Federal Reserve Chair Powell, BOE Governor Bailey, RBA Governor Lowe, are all speaking at engagements in the week ahead. Canadian Inflation and Retail Sales are also released in the middle of the week.
Today sees Japanese Preliminary Q/Q GDP, GDP Price Index, and Tertiary Industry Activity Index. UK Rightmove House Price Index, and Conference Board Leading Indicators are also out today. Germany’s Bundesbank releases its Monthly economic report.

Trading Perspective: The Dollar Index (USD/DXY) a favoured gauge of the Greenback’s value against a basket of six foreign currency maintained its ascendancy, closing modestly higher at 100.361 from 100.283. While US Headline and Core Retail Sales were gloomy, the Empire State Manufacturing Index, Capacity Utilisation, and Industrial Production numbers all bettered forecasts. Last week the Fed confirmed that negative rates are not an option. The US Dollar has also gained an element of safe-haven status during the current coronavirus outbreak.
Expect FX trade in Asia today to consolidate their recent ranges with the Dollar retaining its bid.

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