Monex: EUR/USD houdt winst vast
Hieronder volgt een commentaar in het Engels van Ranko Berich, Head of Research bij Monex Europe op de Amerikaanse dollar, euro en het Britse pond.
The euro held onto its daily gains against the dollar yesterday after the minutes from the latest FOMC meeting contained no surprises, and saw another bout of strength this morning amid optimism ahead of the US Non-Farm Payrolls. When speaking to German Legislators on Wednesday, German Chancellor Angela Merkel warned that EU countries are still “far apart” in negotiations on the EU stimulus fund and the bloc’s long-term budget, and stated she will try to bridge the gap between the member states at the July 17-18 summit in Brussels where the EU leaders will discuss the recovery fund as well as the multi-year budget of over €1 trn. Dutch Prime Minister Mark Rutte said in a statement this morning that although the negotiations on the EU recovery fund will take time, a compromise is possible. His comments may send a positive message for the euro as the Netherlands is among the frugal four nations who opposed the idea of the European Commission €750 stimulus package involving grants rather than loans. All eyes are on the US Non-Farm Payrolls at 14:30 CET, which are set to continue recovering.
The dollar has seen mixed performance so far this week, amid a febrile mix of domestic US Covid news, Fed minutes, and increasing prospects of renewed geopolitical turmoil. When compared to the G10 currencies, the dollar is mostly weaker overnight, although it has managed to stem its losses against several key currencies this morning, notably the Japanese Yen. The week’s main geopolitical news has been China’s imposition of security laws in Hong Kong, which is expected to draw continued criticism from western governments including the US. The House of Representatives passed a bill yesterday imposing sanctions on banks doing business with Chinese officials involved in the suppression of protests in Hong Kong, after Secretary of State Mike Pompeo said authorities had “eviscerated” the rule of law. Minutes from the Federal Open Markets Committee’s latest meeting were released last night, and suggested that policymakers were more receptive to enhancing forward guidance in future meetings than to imposing yield curve control. Both measures would have the effect of lowering medium and long-term treasury yields, although yield curve control would be a more interventionist measure. The minutes made it clear that officials had “many questions” about yield curve control. However, with the US domestic Covid-19 outbreak now looking uniquely severe among developed economies, longer lockdown measures may mean more lasting scarring to the economy, which may force the Fed into considering yield curve control over the coming quarters. One interesting upshot of this week’s developments in FX has been that the US dollar has shown signs of finally being sensitive to negative developments in the domestic US economy. This dynamic will be tested today when non-farm payrolls data for June is released at 13:30 CET. Net payrolls are expected to have expanded by more than 3 million, although the forecasts are surrounded by unprecedented uncertainty.
Sterling’s rally over the last three trading days is of little significance when viewed in the broader picture, with GBPUSD oscillating within a 5% range since April. Its latest rally just sets the pound back into the middle of this range, with a breakout unlikely while the cloud of Brexit uncertainty remains. Notably, however, the pound’s rally wasn’t necessarily put off by the news that Leicester would re-enter lockdown Monday evening, with other regions around the UK also reviewing the possibility of local outbreaks. This morning, the Telegraph reports that the government is set to embark on an astonishing U-turn with respect to its blanket quarantine policy. A list of 75 countries are set to be exempt from travel restrictions as of July 6th according to a report acquired by the newspaper, with Sweden potentially the only nation not to make the list in the EU. With little set for release today ahead of tomorrow’s final PMI readings, sterling is likely to be at the mercy of global risk appetite as the US Covid count remains in focus.