21/05 – Dollar picks up on trade concerns

21/05 – Dollar picks up on trade concerns

GBP: Negative rates still keeping pound capped
EUR: Hits 3 week high against USD, 7 week high against the GBP
USD: Fed limits talk on lower interest rates


IThe air continues to leak out of the sterling balloon this morning, especially against the EUR which now finds itself at a 7-week high against the pound. As always, there are reasons for both a stronger euro and a weaker pound in the price, it’s never as simple as a single-story issue. The euro strength as noted below is on a continuation of expectations that the Eurozone’s latest plan for a bailout will rally the troops and see a wider push for stimulus into the European economy. Sterling’s weakness comes after yet more talk from the Bank of England over negative rates.

At the moment, we still think it unlikely that the Bank of England will cut interest rates below zero. If they do, then the move will come as a result of a significant deterioration in economic prospects. As it stands, we think there are two scenarios in which such a move a could be seen; a substantial increase in Covid-19 cases forming a “2nd peak” that prevents the UK economy from moving towards a meaningful reopening this year, and a decision to push forward with a no-deal Brexit at the end of the year.

We will receive the latest round of preliminary PMIs this morning from the UK services and manufacturing sectors which hopefully should show that sentiment has recovered from April’s nadir. The reports are due at 09.30


As mentioned above, the continued belief that France and Germany have hit on something with their latest stimulus plan has helped the euro retain its recent strength. EURUSD touched a 3 week high yesterday before falling back slightly overnight. The single currency has butted its head against the 1.0980 level three times since the end of March and a break above that level would point to 1.1160.

Europe is largely closed today due to Ascension Day.

US Dollar

The USD has pulled higher through the Asian session after tensions around US/China relations picked up. The US Senate last night passed a bill that would bar Chinese companies from listing on American stock exchanges if they are deemed to be under the control of the Chinese state. Comments that President Xi is behind a “disinformation and propaganda attack on the United States and Europe” on President Trump’s twitter won’t have helped matters either.

Last night’s minutes from the Federal Reserve meeting earlier in the month added little to the conversation around monetary policy that hasn’t already been made clear by recent comments from the Fed Chair. Pricing of negative rates has dipped somewhat in the US and that will continue to act as a relative support for the USD.


China’s National People’s Congress kicks off tomorrow in Beijing with focus falling on what the Chinese state will announce as its GDP target for the year; anything less than 6% is seen as painfully slow. How high this target is will give us an idea as to just how much stimulus the Chinese state is planning to inject into the economy in the coming months.

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.