RedFX Snap: Historic EU summit announces €750bio fund

GBP: Drifting recently, and at the mercy of other currencies, as the Euro and USD take centre-stage. GBP/EUR briefly fell  under 1.1000 in recent days, but not for long. GBP/USD continues to push high levels above 1.2600 due to USD weakness. On a day that sees the UK cabinet in a face-to-face meeting for the first time since lockdown, questions surround the UK government’s lack of decisive policies and actions surrounding Covid-19, and the possibility of increasing numbers of infected people straining the NHS further.

EUR: Reuters reports that the overnight deal was ‘truly historic’, as a late night announcement saw unanimous agreement from all 27 states (first time in almost 70yrs of solidarity). A total of EUR 750bio has been committed as a ‘recovery fund’ comprised of loans and grants (€390bio in grants and €350bio in low-interest loans). This is alongside a €1.1 trillion 2021-2027 budget agreement.

Although the EUR gained ground initially, the below-expectation figure of €390bio of grants showed that the ‘frugal 4’ northern states stood strong, and not only kept this figure near their target of €375bio, but also secured themselves some EU rebates. EUR/USD stays high thanks to this progress, and USD weakness, around 1.1475. These measures will certainly help the EU to struggle back to previous levels of output in the near term.

All of the short-term optimism can easily be tempered by the knowledge that today’s rescue packages have a future cost. Reuters examine this (link below), suggesting that a €400bio loan-loss is looming for EU banks (in the next 3years), as businesses are unable to repay loans.

Link: European Banks face more than €400bio in loan losses

USD: The double-edged sword of an economy under continued threat from Covid-19, alongside a Central Bank & government determined to support it continues to baffle investors in stocks and currency. USD continues to edge lower!

AUD: The Central Bank minutes were released overnight, summarised below. The currency will continue to be pressured whilst the ‘2nd wave’ lockdowns are in place across some states.

• A cautiously optimistic outlook, with GDP less bad than feared

• Conditions in the labour market have been very weak, but not as severe as expected a few months earlier

• Payroll data suggested that the worst of the job losses was likely to have passed