RedFX Snap: UK data disappoints, EU meeting later this week
Currency moves are detailed below, but the market will be focussed on 2 issues in the short-term:
US-Sino tensions have escalated over sanctions imposed over Hong Kong, which is amplified by the UKs action on Huawei and the backdrop of the South China sea, and the fact that US military exercises are currently being undertaken there.
Moderna’s early phase coronavirus vaccine had a positive effect, and will move into second stage testing
GBP: Weaker than forecast GDP data yesterday saw GBP/EUR lose recent gains and GBP/EUR dipped under 1.1000, and GBP/USD fell to a one-week low under 1.2500. The reason for yesterday’s fall was worse than expected UK GDP data (a rise of just 1.8% after a 20.8% fall in April) .. however, this morning’s inflation data was higher than expected, and has stopped GBP from falling further. In particular, GBP/USD has rebounded to the 1.2600 level
EUR: Trading on a firm footing, and EUR/USD is helped by USD weakness, now trading near March20 highs of 1.1425. The euro has been helped by hopes the European Union could agree at its summit later this week on a rescue financing package that will limit the economic damage to the bloc from the coronavirus pandemic – so far they have responded very well.
USD: Battered by the continual worry about the domestic lack of containment of Covid-19 and social unrest. However, the market continues to battle with the situation – the more economic trouble the US seems to be in, the more it will be propped up by the Fed and political measures. This short-term positivity is most prevalent in the US stock markets reaching new highs, but the currency does not trade with such an obvious correlation. US earnings season will bully stocks and the USD, and all eyes will be on Thursday’s data.
JPY: After years of fiscal stimulus and a stagnant economy, the Bank of Japan this morning saw a raft of statements, which is unusual – even mentioning “Various measures are available for further easing including interest rate cuts.” & “Not worried about return of deflation.” JPY suffered as a result, EUR/JPY above 122.00 as the BoJ shows full commitment to battling the devastating effects of Covid-19.
AUD: Steady performance this morning, the risk-sensitive Aussie Dollar rose - Moderna Inc’s experimental vaccine for COVID-19 showed it was safe and provoked immune responses in all 45 healthy volunteers in an ongoing early-stage study, U.S. researchers reported on Tuesday. AUD was up 0.25% vs USD.
CAD: After a poor 2weeks, the Canadian USD rebounded, as the market shrugged off fears of an extension of travel restrictions between the US and Canada – USD/CAD at 1.3600. Importantly later this week, we have the Central Bank’s decision on Interest rates and subsequent press conference – markets will be looking closely at the outlook forecasts.