GBP: Chief Economist sees economy outperforming scenarios
EUR: Another day, another stimulus plan
USD: China headlines stops dollar sales
Sterling is higher this morning although has little to pat itself on the back for, the main drivers of the move were external to the UK economy. That being said, a move higher in sterling assets began following comments from Bank of England Chief Economist Andy Haldane that while the UK economy probably shrank by more than 20% in the 2nd quarter, that is slightly better than what the Bank’s scenario analysis had been based on and “We’ve found the floor or nudged up from the floor and that’s cause for cautious optimism.”
Elsewhere the broader move in riskier assets came from a myriad of factors which could easily keep sterling on the front foot for a couple of days. We have seen similar squeezes before sharp moves lower and our thoughts on sterling remain that June will be a tough month for the pound.
European policymakers are increasing the volume around European stimulus once again with European Union chief Ursula von der Leyen set to propose a roughly one-trillion-euro post-virus recovery fund for Europe. Adding this with the Merkel – Macron plan announced a couple of weeks ago and the belief that some of the more fiscally conservative member states are starting to come round to using grants as opposed to loans, markets are once again buying into the story.
Expectations are that Ursula von der Leyen will announce her plan at around 12.30 BST although the plans will likely leak before then.
Dollar was the loser yesterday, with riskier assets bought up as markets went for a full short squeeze. Overnight however, headline risk around US/China relations has stopped the dollar falling and limited gains for risky assets.
The main impetus seems to be that the U.S. Treasury Department could impose controls on transactions and freeze assets of Chinese officials and businesses following China’s decision to heighten security laws in Hong Kong.
As we noted yesterday as long as the world is focused on economic data that seems to be bottoming out, then the dollar will be unloved.
Everywhere else things are pretty quiet. The yuan has weakened a bit following the US/China headlines and most other currency pairs seem to be consolidating at current levels.
Have a great day, and please take care.