Central banks were in focus last week, as policymakers continue to monitor the effects of Corvid-19. Employment numbers have been awful, reflecting the severe economic conditions. All eyes are on the U.S. GDP report for Q1, with analysts bracing for a sharp decline of 5.0 percent.
In a widely expected move, the Bank of England expanded its quantitative easing program, from GBP 645 billion to 745 billion. Policymakers did not lower interest rates into negative territory, as the official rate remained pegged at 0.10 percent. Unemployment rolls swelled by 528.9 thousand in May, after soaring 856.5 thousand beforehand. However, the unemployment rate remained pegged at 3.9%, surprising analysts, who had expected a rate of 4.7 percent.
The Bank of Japan maintained monetary settings, as policymakers are hoping that a global recovery is slowly underway. The bank said that it will provide some $1 trillion to help cash-strapped companies. In Germany, inflation contracted 0.1% in May, marking the first decline in four months. In the eurozone, annual inflation fell to 0.1% in May, its lowest level since June 2016.
The RBA released the minutes of its June policy meeting. At the meeting, policymakers maintained current policy settings, including holding the cash rate at 0.25 percent. Unemployment surged for a second straight month, as the economy shed 227.7 thousand jobs, worse than the forecast of 105.0 thousand. The unemployment rate jumped to 7.1 percent, up from 6.2 percent beforehand.
In Canada, consumer inflation bounced back with a 0.3% gain in May, after two straight declines. Still, this missed the forecast of 0.8 percent. Core CPI, which excludes the most volatile items, declined by 0.1 percent. There was positive news on the employment front, as the ADP jobs report indicated that the economy added 208.4 thousand jobs in May.
Federal Reserve Chair Powell had a grim message for Congress, warning that the U.S. economy was in the midst of a deep downturn, with “significant uncertainty” about how long an economic recovery would take. Powell added that he did not expect a full recovery until the public was convinced that Covid-19 had been contained. Jobless claims showed little movement last week, with a gain of 1.5 million. This was higher than the forecast of 1.3 million.
- Eurozone Flash PMIs: Tuesday, 7:15 in France, 7:30 in Germany, and 8:00 for the whole eurozone. The services sector remains in contraction but did show some improvement in the April data. The German and eurozone services PMIs were just above the 30-level, while the French indicator improved to 36.6 points. The manufacturing sector also continues to contract, with readings in April well below the 50-level, which separates contraction from expansion. German Manufacturing PMI rose to 36.6, the eurozone indicator came in at 39.4, and French Manufacturing PMI climbed to 40.6 points. The initial readings for May are projected to improve but remain in contraction territory.
- UK Flash Manufacturing PMI: Tuesday, 8:30. The manufacturing sector has been in contraction mode, as factories have been forced to shut down or operate at limited capacity in the wake of the Covid-19 pandemic. In May, the PMI came in at 40.7 and the initial read for June stands at 45.2 points.
- UK Flash Services PMI: Tuesday, 8:30. The services sector has been hit hard as much of the UK economy has ground to a standstill. The Services PMI improved to 29.0 in May, up from 13.4 beforehand. Analysts are projecting a strong improvement in the initial June release, with an estimate of 39.1 points.
- US Manufacturing PMI: Tuesday, 13:45. After a weak read of 39.8 in April, the PMI is expected to climb to 50.0, which separates contraction from expansion. If this estimate is accurate, we could see the U.S. dollar improve.
- US GDP: Thursday, 12:30. Analysts are braced for a sharp drop in Q1 GDP, with an estimate of -5.0%. This is reflective of the damage to the economy due to Covid-19. If the actual read beats the forecast, the dollar could escape without significant losses.
- US Unemployment Claims: Thursday, 12:30. Jobless claims are expected to continue falling, with an estimate of 1.3 million. The numbers have been extremely high, but are a far cry from April, when two weekly releases were above the 6-million mark.
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Further reading:
- EUR/USD forecast – for everything related to the euro.
- GBP/USD forecast – Pound/dollar analysis
- USD/JPY forecast – the outlook for dollar/yen
- AUD/USD forecast – projections for the Aussie dollar.
- USD/CAD forecast – Canadian dollar predictions
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