Monex: Zorgen over Chinese PMI-cijfers en eventuele oververhitting Amerikaanse economie raken EUR/USD niet

May 31, 2021

This is a commentary by Ima Sammani, FX Analyst at Monex Europe.

EUR

EURUSD is holding on to levels seen on Friday after recovering from Friday’s lows, shrugging off any concerns around overnight data from China. Sentiment around the euro remains buoyed, with Friday’s data showing confidence indicators from May printed at their highest levels in more than three years as the hospitality sector gradually reopens.

The gain was also driven by mild optimism in industry, retail trade and construction. French Finance Minister Bruno le Maire upwardly revised the public deficit forecast from 9.0% to 9.4% of GDP for 2021. He also stated he expects economic growth to return to pre-pandemic levels in early 2022 as opposed to the European Central Bank’s forecast of mid-2022.

For today’s economic calendar, all focus turns to preliminary German CPI figures at 13:00 BST which is set to print at 2.4% YoY, although the bank holiday in the US and UK may restrict market reaction to economic fundamentals.

USD

The US dollar opened the week around the same levels seen on Friday’s close after the dollar saw a brief bout of strength on Friday ahead of the core Personal Consumption Expenditure data which surged to 3.1% yearly. Although this shows the US economy is heating up and the Federal Reserve’s inflation target stands at 2%, it shouldn’t move the needle for monetary policy as the Fed stressed that price increases are transitory and the central bank will stay committed to its Average Inflation Target.

The main factor driving the year-on-year increase relates to base effects, as 2020’s base was exceedingly low during the initial lockdowns. The data came as the White House released its full budget proposal for the 2022 fiscal year, which outlined more than $6trn in new spending to help strengthen the social safety net for low and middle-class households and invest in infrastructure, education and climate change.

The plan sees US growth reaching 5.2% this year before slowing down in subsequent years, which is more conservative compared to projections by the IMF and Fed. Similar to the latest fiscal plan which mostly focused on infrastructure, USD price action on the back of the news was limited: the new proposal focuses on longer-term growth and would run over the next 15 years, limiting any impact on short term monetary policy expectations.

GBP

As expected given today’s bank holiday in the UK, price action around sterling remains fairly muted this morning as the currency continues to float in Friday’s ranges against peers. Prospects of a strong economic recovery keep the pound buoyed however, despite the threat of the Indian virus variant having increased lately and Health Secretary Matt Hancock voicing concerns about the June reopening timeline.

Last week saw UK cases of the Covid variant identified in India double in one week, counting almost 7000 UK cases on Wednesday as the mutant strain is highly contagious and likely more transmissible than the variants first identified in the UK. The June 21 lockdown easing data is not guaranteed, as some health experts state it should be delayed until a great proportion of the population has been fully vaccinated.