Economic data have significantly improved as economies went through the worst and are gradually getting back to business but the economic outlook remains uncertain.
The worst of the coronavirus-triggered economic damage seems to have passed and economic contraction began to ease. Experts suggest that the recovery will be gradual but still a long way off.
Economic data from China, being the first economy returning to economic activity, show that May exports contracted, while imports sharply declined. The world’s second biggest economy shrank 6.8% in the first quarter from a year earlier.
US data are massively positive but still weak. The U.S. economy unexpectedly added jobs in May after suffering record losses in the prior month. The US jobs report on Friday showed the jobless rate falling to 13.3% last month from 14.7% in April. But the improvement was unequal, with the unemployment rate for whites posting a record decline. The report followed on the heels of surveys showing consumer confidence, manufacturing and services industries stabilizing. The manufacturing ISM index rose to 43.1 in May from 41.5 in April.
President Trump had a turbulent week amid nationwide protests over police brutality and racial inequality.
The European Central Bank announced on Thursday that it was expanding its stimulus program to help the bloc’s weakest economies. The Eurozone is struggling, as the manufacturing and services sectors continue to decline. The ECB made no change to key interest rates.
European Union and British negotiators said there had been little progress in Brexit trade talks. Britain has just weeks left to extend a year-end deadline to reach a trade deal.
The BoE’s executive director for markets said that a negative interest rate would not be introduced in the near term.
START TRADINGLQDFXperts – Economic data improved but outlook uncertain
Sentiment has improved dramatically in the currency market as traders focus on signs of a rebound from the coronavirus outbreak. Safe-haven currencies were softer while risk-sensitive ones outperformed. Some investors may avoid making big trades before the Fed meeting ending on Wednesday.
EUR/USD continues to rally. The euro jumped 1.73% last week, its third straight weekly rise, after the European Central Bank’s latest stimulus plan. The dollar ended the week lower, for a third consecutive week, despite the better-than-expected US job data. Investors may can expect further volatility from the Fiber in the coming weeks.
GBP/USD recorded another strong week, with gains of 2.5%. The pound had its biggest weekly gain against the dollar since the end of March, gaining more than 3 cents. The sterling is at 11-week highs, but this is due more to U.S. dollar weakness than strength in the British economy.
Dollar/yen posted strong gains last week, climbing 1.6%. Japan’s economy shrank less than initially estimated in the first quarter but still faces its worst postwar slump. The broad impact from the coronavirus crisis is still expected to send the world’s third-largest economy deeper into recession.
The AUD/USD posted strong gains, soaring 4.5%. The Australian dollar gained 13% in the second quarter. The RBA held steady, keeping the cash rate at an ultra-low 0.25%. If the Aussie continues to rally, we could see some intervention from the central bank.
The Canadian dollar climbed 2.5% last week, as USD/CAD fell to its lowest level since early March. The Bank of Canada maintained interest rates at 0.25% for a third successive month. The outlook for the Canadian economy is not promising, but the Loonie has showed surprising resilience.
The week ahead – Economic data improved but outlook uncertain
First-quarter economic data have been gloomy, and there are fears that a “second wave” of Covid-19 could cause more economic havoc.
- Sentiment will face a test later on Monday (08.06) with the release of data forecast to show that German industrial output fell the most on record in April.
- On Tuesday (09.06) investors will focus on Eurozone Revised GDP which declined by 3.8% in Q1. The third read will probably confirm this figure.
- Investors will get a chance on Wednesday (10.06) to see whether the U.S. Federal Reserve agrees with their optimism. The Fed meeting will be the first since April when Fed Chair said the U.S. economy could feel the weight of the economic shutdown for more than a year. Investors also expect the US inflation release.
- On Thursday (11.06) investors will be keeping an eye on Japan GDP for Q1. The Japanese economy contracted by 1.8% in Q4 of 2020, and a decline of 0.5% is projected for Q1. Two consecutive declines in GDP would signify that the economy is officially in recession.
- Friday (12.06) is all about Britain. British GDP and Consumer Inflation Expectations will provide a first insight into the British economy which plunged 5.8% in March.
Follow this week’s economic calendar.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, CNBC, FX street