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Euro Struggles as ECB Says Eurozone Economy Could Shrink by 12% This Year

Published: 28 May at 5 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, China, Germany,

Pound (GBP)

The Pound (GBP) performed well against the Euro (EUR) and US Dollar (USD) after Downing Street announced its defence of Prime Minister Boris Johnson’s chief aide, Dominic Cummings, who broke lockdown regulations in April.

As a result, Sterling reacted positively to an effective settling of the political controversy.

Meanwhile, the Office for National Statistics (ONS) also announced that 24% of businesses currently on pause would restart next month. With growing hopes for the British economy, the Pound reacted positively as there appears a glimmer of light at the long of a long dark tunnel.

Euro (EUR)

The Euro (EUR) showed signs of struggle today after the European Central Bank’s President, Christine Lagarde, predicted that the Eurozone’s economy could shrink by 8 to 12% this year due to the ‘sudden drop of activity’ owing to the coronavirus pandemic.

Meanwhile, today saw the release of Germany’s flash harmonised index of consumer prices for May confirm consensus at 0.5%. However, the month-on-month figure beat forecasts at 0%, despite the -0.1% consensus.

US Dollar (USD)

The US Dollar (USD) benefited from today’s release of the flash US GDP report for the first quarter, which came in worse-than-expected at -5%. As a result, this sparked off fears for the global economy and increased demand for safe-haven currencies.

Cailin Birch, global economist at The Economist Intelligence Unit, commented: ‘This is a dramatic result, given the strong position the US economy was in during January-February.’

‘The imposition of stay-at-home orders across much of the country in only the last 2-3 week of March was enough to prompt the steepest quarter-on-quarter contraction in recent history. This is a major concern looking ahead to the rest of 2020.’

However, the US Dollar’s gains have been generally held back by risk-on market mood as investors continue celebrate the opening of the Eurozone’s economy and other improvements as the peak of the coronavirus appears to be behind us.

Canadian Dollar (CAD)

The Canadian Dollar (CAD) has struggled as oil prices remain flat, with the Western Texas Intermediate stuck in the mid-$30 per barrel range.

Harry Tchilinguirian, the head of commodity research at BNP Paribas, explains:

‘All in all oil is pretty much flat after the price correction yesterday. The market opened lower after the shock API numbers, but it is now treading water until EIA statistics are released.’

However, the ‘Loonie’ has benefited from risk-on markets today, with hopes continuing to grow that the improving global economy could boost Canada’s export-reliant economy.

Australian Dollar (AUD)

The Australian Dollar (AUD) held steady today after Philip Lowe, the Reserve Bank of Australia’s Governor, said that the bank would not rise interest rates for ‘some years’.

Mr Lowe said:

‘The key observation is that the world is very uncertain, and I think it's too early to say what it's going to be, what the economy is going to be like, in four months' time.’

Meanwhile, the ‘Aussie’ is benefiting from positive risk-sentiment, although this is being tempered by growing worries over US-China trade relations. Going forward, we could see the Australian Dollar suffer if relations between the two superpowers deteriorates.

New Zealand Dollar (NZD)

The New Zealand Dollar (NZD) benefited from improving ANZ Business Confidence figures for May. The business morale guage rose from -66.6 to -41.8.

As a result, the ‘Kiwi’ has been buoyed by a glimmer of hope for the economy. Furthermore, the New Zealand Dollar, like the ‘Aussie’, has benefited from positive risk-sentiment today.

As of Thursday, 28th May 2020, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1125, GBP USD exchange rate was 1.232, GBP AUD exchange rate was 1.8588, GBP NZD exchange rate was 1.9866, GBP CAD exchange rate was 1.6974, and GBP CNY exchange rate was 8.8039.
Dominic Lee About Author: (474 Posts)With over ten years experience as an economist – including four years spent as a chief economist with a major currency broker – Dominic has acquired a wealth of knowledge which he uses to forecast market movements. Dominic now works as an independent business advisor and writes for several financial publications.

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