GBP: Moved on global risk, not domestic issues
EUR: Lack of infections helping EUR stay strong
USD: Infrastructure plans help risk sentiment

Sterling

Sterling continues to trade in a volatile manner given its strong correlation with global equities, getting back into the high 1.26s yesterday against the USD before coronavirus headlines out of China knocked risk assets lower.

This morning’s inflation figure hasn’t altered much; Inflation remains well below the Bank of England’s target here in the UK, running at 0.5% in May. This is no great hindrance to the UK’s economic performance but more a sign that input prices – oil and other industrial commodities – have swan dived in recent months and that demand remains perilously weak; you don’t get inflation without demand. When inflation starts to tick higher, absent some spike in commodity prices, it will be a positive thing.

Such low readings will eventually cause the Bank of England Governor to explain such low inflation to the Chancellor in a series of letters but we all know that the BOE’s mandate is currently much more about providing every liquidity and support to the UK economy it can as opposed to price stability.

The Bank of England meeting begins today, concluding tomorrow and we may see some sterling downside into the meeting given positioning around negative interest rates.

Euro

The continued reopening of the European economy alongside what seems to be a limited emergence of a 2nd wave of Covid-19 infections is keeping the euro from swooning too much too quickly.

Our expectations remain for a stronger EUR in the coming months.

US Dollar

The two sides of the USD were shown in sharp relief yesterday; a morning of losses as investors piled into risky assets before headlines on further coronavirus concerns reversed said flows.

Notes from the Fed Chair were predictably downbeat with Jerome Powell telling the Senate Banking Committee that “If not contained and reversed, the downturn could further widen gaps in economic wellbeing that the long expansion had made some progress in closing.”

Yesterday’s US retail sales numbers however were stellar and showed a strong rebound for consumer spending in the US; something that the current increase in Covid-19 cases is putting very much in danger.

Elsewhere

We’re back to monitoring a number of places for the spread of Covid-19 with risk currencies like the AUD sliding as concerns increase. Beijing has imposed restrictions on visits to all residential compounds in an escalation of measures, having also cancelled over 1000 flights in and out of the city. Similarly, Brazil reported a record number of daily cases yesterday while those having to seek hospitalisation in places such as Texas and Florida continues to surge.

Have a great day and please take care.