16/06 – US spending plans allow investors back into the market

GBP: Squeezed higher
EUR: Resilience paying off
USD: Infrastructure plans help risk sentiment

Sterling

Unemployment data released this morning has started the day in a rather confusing manner with the jobless rate sticking at 3.9% in the UK although those claiming jobless benefits rose by over half a million. Of course, the most important facet of the labour market remains how we as a country return to work, and how productive we are able to be with the various restrictions on travel, social distancing and hygiene that will linger long past the lockdown.

Sterling is uncertain this morning but has managed to make some ground up against the USD overnight as investors once again sold the dollar following Fed promises of more lending.

The call between Boris Johnson and EU President Ursula von der Leyen yesterday revealed absolutely nothing new on Brexit. We hope that our webinar this morning at 11am will manage to beat it for insight on what we expect to happen and the impact on sterling through the rest of the year.

You can register at the link above; it takes place this morning at 11am BST.

Euro

The euro’s resilience is paying off this morning amid the latest impulse of USD weakness and we expect EURUSD to retake the 1.14 level in the coming sessions. Similarly, we expect EURGBP to test the 0.91 level against EURGBP by the end of the month.

Economic sentiment numbers from Germany this morning are not expected to shift the needle although any outsized move in confidence will likely help the euro continue its recent march higher.

US Dollar

The dollar has weakened overnight after plans were announced for a $1 trillion stimulus plan to spend on infrastructure in the US. The Fed’s launching of a previously announced plan to buy corporate debt also allowed risk to trade higher.

I’m not really surprised that the market has reacted positively to two pieces of news; one that we have heard before and one that needs a lot more detail before it can legitimately be counted upon to boost economic output. Investors are buying the dip that we made last week on fears around a 2nd wave of coronavirus. If there is a continued issuance of US debt to fund this infrastructure then the dollar’s move lower will continue.

US retail sales released this morning should show a rebound in US spending albeit nowhere close to the falls seen in April.

Elsewhere

In a speech that will not surprise anyone, Bank of Japan Governor Kuroda told yen markets that he cannot see the Bank of Japan raising interest rates through next year or 2022. This mirrors most other G10 central banks.
We hear from both the Swiss National Bank and the Bank of England later this week.

Have a great day and please 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.