Monex: COVID-19 worries weigh on euro

Monex: COVID-19 worries weigh on euro

Inflatie Valuta
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This is a commentary by Simon Harvey, FX Market Analyst at Monex Europe.

 

EUR

The single currency rebounded from early losses to close 0.45% higher on the day yesterday. Contagion from Turkey’s currency crisis looked contained relative to previous episodes, while diplomatic battles with the UK over vaccine deliveries didn’t weigh on eurozone sentiment either. Instead, the environment of moderating yields benefited the single currency, as eurozone yields remain pinned at a substantially lower rate largely due to the increase in purchases under the ECB’s PEPP.

The ECB delivered on its promise to increase PEPP purchases last week, with data on Monday showing €21.2bn net purchases were settled - the largest amount since December. This morning, however, the single currency trades 0.3% lower against the dollar, while its fortunes remain better than the pound to provide further downside in GBPEUR. News that Germany is imposing a five-day lockdown over Easter shortly after extending current lockdown measures until April 18th is weighing on the bloc’s growth outlook and European assets thus far in the European session.

 

USD

After starting the morning session firm with risk sentiment on the ropes after events in Turkey over the weekend, the dollar spent the rest of the day trading on the backfoot. Risk appetite began to improve throughout the session as global yields continued to drop.

This morning, however, news of additional fiscal stimulus in the US is propping up the greenback. Preliminary estimates of Joe Biden’s infrastructure plan place the price tag at around $3trn. The news of additional fiscal stimulus in the form of “build back better” only adds to the narrative that the US economy is likely to outstrip G10 peers in the speed of its recovery this year.

The news of a faster economic recovery adds fuel to the speculation that the Fed will have to normalise policy earlier than it is currently signalling, however, moves in fixed income markets this morning don’t show these expectations being fanned in fixed income markets just yet. This is likely due to the fact that Biden’s fiscal stimulus plans will face greater resistance this time around as the reconciliation process isn’t available, meaning 60 votes in the Senate is required - 10 shy of the amount the Democrats hold.

The plans will, therefore, have to be agreed by Republican senators even though part of the spending is being financed by higher tax rates for corporations and the wealthy. Today, a wedge of Fed speakers are due to release fresh communications.

 

GBP

After testing to break lower yesterday as vaccine tensions and the threat of Europe’s third wave landing on Britain’s beaches weighed on sentiment, the pound managed to cling-on as broad USD weakness kept GBPUSD afloat. However, sterling’s losses weren’t contained against the euro. GBPEUR finished the session 0.3% lower after dropping as much as 0.54% on the day.

This morning, however, sterling is under renewed pressure, but this time from the broad dollar. Sitting 0.43% lower this morning, GBPUSD’s price action doesn’t look out of place with most of the G10 currencies sitting in the red.