Monex: Oplopende spanningen China - VS zetten EUR/USD onder druk

Monex: Oplopende spanningen China - VS zetten EUR/USD onder druk

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Handelsconflict VS-China.jpg

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.

USD

Though price action remained limited throughout the G10 space, a gauge of the dollar advanced for another day this morning as US-Sino tensions remain at the centre of attention for investors. China’s Foreign Minister Wang Yi said during his annual news briefing on the sidelines of the NPC on Sunday that some US politicians are pushing the two countries to the brink of a “new Cold War”, and that the US should abandon its “wishful thinking” of changing China. Wang added that “China has no intention to change the US, nor to replace the US”, as a response to the Trump Administration who labelled China as a strategic competitor in its first national security strategy. The rising tensions bode well for the dollar and had the currency strengthen against most major currencies this morning, after the PBOC set the yuan fixing at its lowest level since 2008. Boston Fed President Eric Rosengren stated on CBS yesterday that he expects the Main Street lending program to be operational within two weeks. The program was part of the emergency lending package announced by the Fed to enhance credit flow during COVID-19 and should provide up to $600 bn to small and medium-sized companies. Today the US enjoys a bank holiday to celebrate Memorial Day and honour and mourn those who served in the US Armed Forces.

EUR

The euro ended the week on a soft note following the release of the ECB’s account of the monetary policy meeting in April and a swathe of dollar strength as risk sentiment deteriorated. In the minutes, the ECB expressed their readiness to expand the easing measures at the upcoming meeting in June. The report indicated that policymakers view that the scale of the current stimulus package may not be sufficient and are prepared to increase the size of the Pandemic Emergency Purchase Programme (PEPP), among other tools, to help smoothen economic recovery. The June meeting will be crucial in many ways, where the central bank’s new set of macro-economic projections, the foreshadowing comments regarding the upscale of stimulus and the ruling of the German Federal Constitutional Court will all be key factors in a discussion on a potential increase of PEPP. Over the weekend, the leaders of the Netherlands, Austria, Denmark and Sweden rejected the Franco-German plan laid out last week. The four EU leaders expressed their discontent with the €500 bn plan for COVID-19 stricken countries, and instead recommended creating an emergency fund that is financed by loans only, rather than grants. The entrenched divide over the eurozone’s economic recovery puts Brussels in a tough position and complicates the task of EC President Ursula von der Leyen who is preparing to present a 2,000-page proposal with the detailed plans for the recovery fund on Wednesday. This morning, the euro struggled to resist further depreciation against the greenback ahead of German IFO figures which are expected to print slightly higher than April’s readings. This week’s economic calendar is packed with more sentiment data releases, with German Consumer Sentiment scheduled for tomorrow morning, French Consumer Confidence up on Wednesday and eurozone Business Climate and Economic Sentiment data on Thursday.

GBP

Sterling is trading in narrow ranges against the dollar this morning as both the UK and the US are enjoying a bank holiday today. Multiple narratives continue to weigh on the pound’s price action, however. First, little progress has been made on EU-UK negotiations ahead of the July 1 deadline to extend the transition period. Second, markets continue to speculate on the potential of negative interest rates after BoE’s Deputy Governor David Ramsden stated in an interview with Reuters on Friday, that it is “perfectly reasonable to have an open mind” regarding negative rates. His comments add to earlier signs from Governor Andrew Bailey that the central bank is not ruling out negative rates, though Bailey remained more nuanced and added that “this does not mean we rule things in either”. Third, the UK is in a tougher position than Europe in terms of easing measures and reopening the economy as the peak of the virus occurred later in the UK than in most of the eurozone countries, and the UK is lagging behind in easing restrictions compared to its oversea neighbours. The data illustrates the UK’s tricky position well: retail sales released on Friday showed a plunge by nearly 20% from March, despite the record surge in online sales; while consumer confidence in May dropped to -34, slightly below the prior reading of -33. This week’s calendar is light for the UK, with nationwide house prices released on Thursday being the only data release of note.