05/06 – Dollar ending the week poorly ahead of Brexit headlines

GBP: Barnier and Frost to announce progress around noon

EUR: Euro driven onwards by higher ECB spending

USD: Cannot find a bid

Sterling

Against the dollar sterling finds itself being dragged higher, a product of broad USD weakness, against the euro things are a lot more sanguine.

The EU’s chief post-Brexit negotiator Michel Barnier will debrief reporters today at lunchtime with his British counterpart David Frost doing the same in London. Further language suggesting a painful week of talks and a gap between the two parties will likely knock sterling lower.

Sterling declines may be limited by the knowledge that there are a couple more opportunities for the UK and EU to pull something out of the fire but those chances are fading with a little under 4 weeks until a decision must be made.

Euro

Our predictions proved correct yesterday with an increase in the European Central bank’s Pandemic Emergency Purchase Program leading to a move higher for the single currency, particularly against the beleaguered USD.

Without even mentioning the German constitutional court, the ECB decided to raise their spending on Eurozone bonds by EUR600bn and extended the time frame within which they will continue helping the Eurozone economy.

It’s still not enough and assurances were made that further stimulus will be forthcoming as the recovery develops.

Markets have moved quite so quickly on the belief that with an ECB that is prepared to launch more bond-buying and government plans for fiscal stimulus may be close to a sweet spot. This is the Eurozone however, and they are adept at snatching defeat from the jaws of victory so we will not celebrate too quickly.

US Dollar

Yesterday was indeed a pause in the dollar move lower and not an opportunity for the greenback to mount a counterattack. You know a currency is in trouble when it cannot rally alongside a move higher in its bond yields as what played out yesterday.

We may see a similar pause in the move this morning ahead of this afternoon’s jobs report. While last month’s payrolls figures were always going to be awful, this month’s is up for debate with analysts expecting anywhere between 800,000 and 12 million jobs to have been lost in May.

Alongside the triple-whammy of influences that are hammering the Trump presidency – a disastrous Covid response, an unwillingness to lower the temperature of protests on the streets of the US, and the worst economic performance since the Great Depression – a weaker USD is nothing.

Elsewhere

AUD has continued its rally alongside the USD pull lower. It is the asset that currency speculators to express their happiness with the global economic recovery given its trade links with China and as soon as that loses momentum so will the Australian dollar.

Have a great day, a wonderful weekend and please remember to take care.

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Jeremy Thomson-Cook

Jeremy Thomson-Cook

Jeremy has over 13 years experience working in the FX industry. As a specialist in political risk mitigation and currency hedging, he regularly advises clients on the day-to-day moves of the markets and the implications of fiscal and monetary policy on international businesses.