News & analysis

It’s been a relatively quiet session in G10 FX so far today, with the dollar continuing to weaken, consistent with the broad trend in the week so far.

The dynamic loosely remains one of improving risk appetite: on the day, EUR and JPY are among the worst performers, GBP and SEK the best. Conditions in interbank lending markets appear to be showing a marked improvement, with 3 month LIBOR falling 13 basis points to 0.55613, the lowest rate since 2016 and the lowest spread to OIS since early March.

The ECB is stepping up to the plate this afternoon, after a morning of poor eurozone data releases that highlighted the scale of the shock facing the eurozone economy:

France: French first quarter GDP figures indicated a strong contraction of 5.8% quarter-on-quarter and 5.4% year-on-year, while consumer spending crashed by 17.9% month-on-month in March and 18.1% year-on-year. Headline inflation fell to -0.4% YoY in April, while the HICP rate dropped to 0.5%. Both GDP and consumer spending figures printed worse than Bloomberg’s forecasted median, while the inflation data was slightly higher than consensus.

Spain: Spanish headline inflation fell to -0.7% in April from 0.0% in March, while the HICP rate dropped to -0.6% year-on-year, slightly above consensus at -0.8%. GDP numbers for the first quarter 20crashed by 5.2% in the first quarter, while the year-on-year quarterly drop printed -4.1%.

Eurozone first quarter real GDP plunged by 3.8% quarter-on-quarter, similar to Bloomberg’s estimated median, while the year-on-year rate dropped to -3.3% from +1.0% in Q4. Headline inflation fell to 0.4% in April from 0.7% in March, while consensus was at 0.1%.

Additional thoughts on the data:

  • Unemployment figures almost certainly understate how bad the shock to the labour market is in reality, due to a multitude of various temporary support schemes that mean not all jobless workers are showing up in headline unemployment.
  • The figures above are first estimates that are based on lagged data and are subject to further revisions, and therefore do not paint the full picture of the economic damage until the revised numbers are released. As the revised data includes more up to date numbers, they are likely to reflect the effects of the lockdown more than the current readings. This holds especially for the data from March, as lockdowns were still fully implemented at the end of March, while in the case of April’s data, things may not get much worse as some eurozone countries have already opened some parts of their economies.
  • On the whole, the releases highlight the fact that the eurozone economy has already seen the deepest shock to growth since the global financial crisis. Given this is due to one month of lockdown, it’s painfully clear that the second quarter will see a recession of unprecedented depth in the Eurozone, consistent with indicators from other major economies.


Chart: Eurozone real GDP (quarterly) dipped far below the GDP figures during the GFC


Chart: Narrowing LIBOR-OIS indicating improved interbank lending conditions


Ranko Berich, Head of Market Analysis
Ima Sammani, Junior FX Market Analyst


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