Daily Market Update

Quiet Safe-Havens, Euro Up on Aid Plan

May 28, 2020

The U.S. Dollar is weakening against some major counterparts like Euro while being pulled the other way against Pound and Swiss Franc.

Overview

All other currencies remained in familiar ranges overnight as headlines mostly focus on the ongoing rifts between China and the United States. Hong Kong becomes a major point of focus as new legislation in Beijing aims at taking more of a hold on security of the key financial hub. Bills condemning Chinese action there and also bringing up human rights abuses are doing very little to ease concerns of upcoming obstacles to trade as well as global growth. The world is not jumping on to the buck as this creates havoc for markets looking to recover and expand after a pandemic.

The road to well-being will be tough as another Jobless Claims release revealed further use of benefits from many without work as another 2.1 million filed last week. Additionally, Durable Goods Orders fell (-17.2%), not as much as expected, yet still difficult to gauge how much things can improve the next month or two. Meanwhile, Gross Domestic Procut fell at a higher annualized pace than expected at (-5.0%) for Q1. At the moment, not many factors look dollar-positive and may not as the week and month closes with questions over domestic stability as we re-open economically

 

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EUR

The Euro is on the rise after yesterday’s achievement by the EU to come up with a recovery package that includes €500.0 billion in grants and €250.0 billion in loans to rescue the continent from the negative effects of COVID-19. European Commission President Ursula von der Leyen announced the agreement will need to be approved by all 27 members, but surely it will be accepted as it builds from proposals by Germany and France as well as input by the Netherlands, which did not originally like the Franco-German funds program. We think that the greenback could always find some resilience, but after the pandemic and the re-start along with a more united Euro-bloc, we see Euro meriting its place and with room to appreciate.

 

GBP

The Pound is down as renewed Brexit worries are resurfacing in the face of another round of talks as both parties have failed to make any progress. By this point, U.K. negotiators seem to realize they have little leverage and that EU counterparts are starting to treat the trade deal as less of a priority than in the past. We have to remind ourselves that the Brexit referendum result took place on June 23rd, 2016 and the back-and-forth has given no clear details on what a situation of trading goods and services would be like since their visions are far apart as time has passed.

The frustrations are many within U.K. business leaders. More importantly, the Bank of England will need to help the economy more if it faces post-COVID turmoil accompanied by a ruined relationship with the rest of the Europe. The downward risks are high; thus, Sterling is vulnerable to lose more.

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