The euro continued its rally against the dollar yesterday and once again extended its highest level since mid-March as risk appetite continued to drive markets and eurozone data printed better than expected. The composite Purchasing Managers’ Index surged to 31.9 in May from 13.6 in April, slightly above the forecasted median of 30.5. The reading still remains well below the level of 50 which indicates economic contraction, but there are signs that the eurozone is slowly rebounding as the pace of decline is easing. German Chancellor Angela Merkel’s coalition agreed a whopping €130 bn stimulus package, exceeding expectations of earlier reports that foresaw a €50-€100 bn plan. This morning, the currency pared back some of its gains and fell against the greenback for the first time in over a week, ahead of the European Central Bank monetary policy announcement that takes place this afternoon at 13:45 CET. The ECB meeting is followed by a press conference led by ECB President Christine Lagarde and takes place at 14:30. The consensus among analysts remains supportive of a €500 bn increase to the Pandemic Assets Purchasing Programme (PEPP) with no change in the current interest rates. Today’s meeting will also outline details on the ECB’s outlook for the economy and inflation, including risks to the projection, and will be the key factor in the euro’s price action.

The ongoing narrative of improved risk sentiment and dollar weakness was extended in yesterday’s trading session and had the dollar falling against most of its G10 peers in the morning, before a reverse in the trend occurred after reports Wednesday showed better-than-expected US nonmanufacturing and factory orders. US-Sino tensions are back in scope after the Trump administration announced to suspend passenger flights to the US by Chinese airlines from June 16 onwards if not earlier. The focus today turns to the weekly US jobless claims report that should paint a picture of tomorrow’s nonfarm payrolls release. The jobless claims are released at 14:30 CET and are projected to show a decline and print at 1843K compared to the prior reading of 2123K.

The pound was trading on the front foot against the dollar yesterday, before snapping its five-day streak overnight, as the broad-based dollar selling pressure finally abated, and comments from Bank of England Governor Andrew Bailey regarding Brexit left markets with concerns. The Governor stated in a conference call with major banks that lenders should plan for the possibility that the UK will not reach a deal with the EU before the end of this year. Any request of a deadline extension must be lodged by the UK before the end of June, but the British government has shown no willingness to do so. If the two nations fail to reach an agreement by year-end and no deadline extension is accomplished, the UK will default to trading with the bloc on terms set by the WTO, leaving businesses and consumers in a burdensome position. The UK Government has criticised Beijing’s planned imposition of the new security law on Hong Kong and is taking steps to exclude Huawei from its 5G networks by considering potential alternatives, adding to the political challenges within the UK.