European session review: GBP appreciates as global lockdown easing supported risk sentiment

GBP rose against most other major currencies in the European session on Tuesday as risk sentiment improved slightly amid reports that major economies around the world had begun reopening.

Italy, one of the hardest hit by coronavirus countries, allowed 4.5 million citizens to get back to work on Monday after nearly two months at home, while Spain unveiled a plan for a progressive re-start of the economy. Similar, but more cautious, moves had been announced in France, Germany, the UK, and many other countries. In the U.S., most states are preparing to reopen by the end of this week.

In addition, a senior Trump administration official signaled that the United States was not looking to punish Beijing economically over the coronavirus, contradicting the U.S. president's threats to impose tariffs on China as punishment for the pandemic. Deputy national security adviser Matthew Pottinger said on Monday the U.S. was not considering "punitive measures" against China over its handling of the coronavirus pandemic.

However, the further growth of the pound was limited by the latest economic reports. IHS Markit's report revealed a sharp contraction in the UK service sector in April due to coronavirus lockdown measures. According to the report, IHS Markit/CIPS UK Services PMI Business Activity Index fell to 13.4 in April from 34.5 in March, pointing to the steepest contraction in the sector since the start of the survey in July 1996. The earlier "flash" reading for April was 12.3. Meanwhile, the data published by the Society of Motor Manufacturers and Traders (SMMT) revealed that car registrations in the UK plunged 97.3 percent y/y to 4,321 units in April. That was the lowest level since February 1946, just a few months after the end of World War II.

Market participants are also awaiting the outcomes of the Bank of England's (BoE) meeting on Thursday, which could provide more catalysts for movement in GBP.