News & analysis


Sterling ripped over 1.5 percentage points higher yesterday and hit a one-month high following broad dollar weakness and a glimmer of hope concerning Brexit talks. The move came as Markit manufacturing Purchasing Managers’ Index in May printed slightly above the forecasted median at 40.7, but still remaining in contractionary territory. The UK and the EU will start another round of negotiations today to try to reach a trade agreement, but each side has been blaming the other for the lack of progress so far. This morning, the pound continued its rally and saw another swathe of strength in the buildup to the trade talks. UK house prices fell by 1.7% in May, well below the 1.0% forecasted decrease, which is the largest monthly fall since February 2009. Year-on-year house price growth slowed to 1.8% from 3.7% in April as a result. The slowdown in housing market activity illustrates the result of the lockdown measures, considering that many had put off moving as a result of the lockdown. Later this morning, mortgage approvals in April come in at 9:30 BST and are expected to drop down to 24K from 56.2K in March.


The euro continued to trade comfortably around its three-month high yesterday as broad selling pressure surrounding the greenback went on to grab the headlines. Many eurozone countries are returning from a long weekend after Whit Monday today and continue to reopen their economies, but this did not cause EURUSD to break out of familiar levels this morning. German Chancellor Angela Merkel will host officials from the ruling coalition of her Christian Democratic-led bloc and the Social Democrats at 13:00 BST in Berlin today to discuss details on a second stimulus package amounting between €50 bn and €100 bn to help the German economy recover from the economic turmoil caused by the pandemic. The Social Democrats are aiming for spending closer to €100 bn, while Merkel’s party prefers to keep the amount of new debt to a minimum. German Finance Minister Olaf Scholz reported to the Bild newspaper on Sunday that he also wants to extend the Kurzarbeit wage-support program. Today is a quiet day on the eurozone economic calendar with no major releases scheduled.


The dollar spent another day in the red against the whole G10 currency board yesterday as US protests and US-Sino tensions remained in scope. Trump’s speech to China on Friday in which he criticised Beijing over the new security law proposal in Hong Kong gave little insight into the specifics of the measures that the US could take. The absence of any concrete steps in his announcement, especially regarding the phase one trade deal, boosted risk sentiment as markets took comfort from the fact that the speech did not cause any further escalations in the tensions between the two nations. This changed in the afternoon when Chinese government officials ordered some of the largest state-run agricultural companies to stop the purchase of American farm goods for the time being. It was also reported to Bloomberg that Chinese buyers cancelled an unspecified number of US pork orders. With farm imports being a large point of discussion in phase one trade deal, the pausing of purchases may potentially harm the trade deal as a whole. After the announcement, risk sentiment diluted – US 10 year Treasuries pared back losses and gold edged lower as well. A dismal reading of the ISM manufacturing Purchasing Managers’ Index of 43.1 fell slightly short of the forecasted expectation of 43.8 while edging higher from the prior reading, but this had little impact on the dollar’s price action. With today being a light day on the economic calendar for the US, markets keep a close watch on US-China headlines, as well as further developments in the ongoing protests.


The loonie was trading in a tight range against the dollar yesterday before rallying to fresh highs in the American trading hours. The broad-based USD sell-off, together with a better-than-expected economic data in Canada and steady crude oil prices helped USDCAD to slide to a 12-week low. The Markit manufacturing Purchasing Managers’ Index in Canada surged to 40.6 in May from 33 in April. Although still in contractionary territory, the surge in PMI may indicate that the economy is on its way to recovery after hitting rock bottom. As today is a quiet day on the Canadian data front, the main driver of loonie price action for this week remains the Bank of Canada meeting on Wednesday.



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