Chair of the Federal Reserve Jerome Powell had very little positive to say regarding the US economy during his speech yesterday. As we had anticipated, Powell ruled out the possibility of the Fed cutting interest rates into negative territory, although he did warn that additional measures may have to be taken in the coming months to shield the economy. He warned the market about significant downside risks and long-term economic harm caused by the virus outbreak, noting that the recovery would be a gradual one.

We’ll continue to receive evidence of this aforementioned hit to the US economy in this afternoon’s initial jobless claims data, which remains one of the most important releases on the economic calendar. While we are seeing an easing in the number of new weekly jobs shed, the pace at which new claims has slowed has been a much more gradual one than hoped. With no real job protection schemes in the US to speak of this is likely to remain the case in the coming weeks – a development that is unlikely to help the dollar’s cause, in our view.

Aside from today’s jobless claims, we look ahead to tomorrow’s US retail sales data for April. An avoidance of sales falling by a fresh record amount would be a major surprise.

Pound falls to new lows after UK GDP data

The pound ended around half a percent lower versus the US dollar during the London trading hours yesterday, although we attribute this largely to a broadly stronger greenback. Wednesday’s GDP data, which showed the UK economy contracted by a record 5.8% in March, was merely a taste of things to come. It is abundantly obvious that the UK economy is heading for a recession, the real question is just how significant this recession will be. Next week’s PMI data for May and retail sales figures for April could give us at least some indication as to the magnitude of the downturn.

Meanwhile, the euro held up better than most amid the broad rally in the dollar. Eurozone industrial production data came in slightly better-than-expected, although given this was for the month of March it was somewhat overlooked. There instead appears growing optimism that the Euro Area economy will be back up and running much quicker than its US counterpart. New cases of the virus continue to ease in the main economic areas of the bloc and are now around their lowest level since early-March. With some industrial production beginning to resume, we think that we may begin to see a slight dichotomy in economic data between the US and Euro Area once released for the May and April months. This would, we believe, be supportive of the euro in the more medium-term.