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Euro undermined by record slump in Eurozone GDP

currency-newsEuro undermined by record slump in Eurozone GDP
The euro was on the defensive yesterday as the Eurozone’s latest GDP figures confirmed growth in the bloc took a heavy hit in the first quarter.

Trade in the pound so far today is mixed, with GBP/EUR retreating to €1.1457 and GBP/USD dipping to at $1.2555. GBP/CAD is buoyed at C$1.7302, while GBP/AUD and GBP/NZD tick up to AU$1.9465 and NZ$2.0626 respectively.

Coming up today the focus will be on the latest ISM manufacturing PMI, with the US dollar potentially facing some headwinds depending on the size of the contraction in the US factory sector last month.

What’s been happening?

The euro was centre stage on Thursday as the Eurozone published its first quarter GDP figures and the European Central Bank (ECB) delivered its latest rate decision.

First up was the GDP release, which weighed on EUR sentiment as it reported that economic growth tumbled by 3.8% at the start of 2020, the sharpest contraction on record.

This was followed by the ECB’s latest policy meeting, where the bank left interest rates on hold. President Christine Lagarde struck a gloomy tone as she warned the Eurozone economy could contract by up to 12% in 2020.

The US dollar suffered from a sharp sell-off yesterday, and while there didn’t appear to be any clear catalyst for the slump it followed the release of US initial jobless claims, which revealed US unemployment has risen by over 30 million since the start of the coronavirus lockdown.

Meanwhile, the pound roared higher on Thursday as Boris Johnson said the UK has passed the peak of its outbreak and he will unveil a ‘comprehensive plan’ next week detailing how the government will re-open the economy.

What’s coming up?

In the spotlight today we have the latest US ISM manufacturing PMI, which will reveal how the US factory sector fared in April.

This is likely to put further pressure on the US dollar if manufacturing activity is shown to have contracted faster-than-expected last month.

GBP investors will be looking to the UK’s own manufacturing PMI, where April’s finalised figures are expected to confirm domestic factory growth stuck a record low, likely limiting any additional upside in the pound.

Finally, in the absence of any notable economic data, the euro may struggle to find direction today, as EUR sentiment remains pressured by the gloomy outlook in the Eurozone.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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