On Friday, UK’s Chancellor of the Exchequer Rishi Sunak stated that the UK had passed the acute phase of the crisis while also stating the furlough scheme will not be sustainable past the 8month timeframe given. A key market focus will be on labour-market developments once the furlough scheme starts to unwind. Overall, Sterling sentiment remained negative with a significant element of caution ahead of upcoming trade negotiations with the EU. A weaker global risk tone and concerns over the international economic outlook was also a key factor undermining support. The Euro strengthened to push the Pound to fresh 3-month lows near 1.0985 lsh also while dipping to 1.2315 against the Dollar.
Prime Minister Johnson will pledge this week not to return to austerity in the aftermath of the coronavirus crisis and will look to accelerate infrastructure projects. EU trade talks will be a key focus this week with intense face-to-face negotiations getting underway. Ahead of the talks, Johnson repeated the threat to quit the EU on Australia terms, but negotiators also stated that an outline deal was achievable during the summer. Choppy trading is expected, especially with month-end pressures also a significant focus over the next 48 hours.
US personal spending increased 8.2% for May following a revised 12.6% decline the previous month, although this was below market expectations of a 9.0% increase. Personal income declined 4.2% following the 10.8% increase the previous month reflecting the impact of last month’s personal payments from the Federal government.
The Dollar was able to secure significant defensive support despite concerns over US fundamental developments while commodity currencies retreated sharply. Overall, the Euro dipped to below the 1.1200 level before stabilising late in the US trading session. The US currency will tend to gain if defensive demand dominates, but lose ground if US fears intensify and global recovery hopes continue.
The St Louis Fed deflation-risk index hit the highest level since 2008, maintaining strong pressure for an extremely accommodative monetary policy.
Euro-zone M3 money supply increased 8.9% in the year to May from 8.3% previously with private-sector loans growth unchanged at 3.0%. ECB President Lagarde stated that the massive increase in government debt will eventually have to be repaid, but there were no comments on the short-term monetary outlook.
The Commodity Futures Trading Commissions (CFTC) data recorded a further small increase in long non-commercial Euro positions to the highest level since May 2018, limiting the scope for further buying interest and over the weekend, the German Constitutional Court stated the Bundesbank could determine whether it continued to engage in bond buying which will offer some relief. According to sources, German Chancellor Merkel and President Macron will not present a new recovery fund proposal and will concentrate on garnering support for the existing proposals.
As of writing, the Euro trades around the 1.1255 mark against its US counterpart.
Data to watch
09:30 - GBP - BOE Gov Bailey Speaks
14:00 - USD - Pending Home Sales
Posted in Daily Market News on Jun 29 2020