May 22, 2020, 4:09:59 PM
United States of America
USD is strengthening against EUR and GBP but weakening against JPY.
Investors are focused on the aggravation of US-China relations, caused by the possibility of adopting a new law on national security by China, which could lead to increased control of mainland China over Hong Kong, where anti-government protests have long been held. This could trigger US new sanctions. Earlier, the US Senate has already passed a law that could limit the listing of Chinese companies on US exchanges or attract funds from American investors if they do not comply with US regulatory and audit standards. China’s representatives said that the country will not yield to pressure but sees more benefits in mutually beneficial cooperation with the US. Despite the political aggravation, today, the Premier of the State Council of the People's Republic of China Li Keqiang confirmed that Beijing will continue cooperation with Washington in the implementation of the first stage of the trade deal.
EUR is weakening against USD and JPY but has ambiguous dynamics against GBP.
EUR is under pressure of the growing tensions between the US and China, which could adversely affect the global economy, which is already suffering huge losses from the coronavirus epidemic. Today, the minutes of the last April meeting of the ECB were released. Its participants agreed that there was a sharp reduction in world business activity and in the first half of this year, the volume of world trade has significantly decreased. EU Q1 GDP decreased by 3.8%. However, recovery is expected after a partial lifting of quarantine measures. According to the forecast, this year, the EU GDP will fall by 5–12%. Against this background, it was decided to soften the conditions of financial support for the market and the purchase of assets, expand the relevant programs, as well as keep rates at the same levels until inflation steadily approaches a level close to the target of 2%.
GBP is weakening against JPY and USD but has ambiguous dynamics against EUR.
Investors are focused on the publication of UK retail sales data, which was worse than market expectations. The indicator decreased by 18.1% MoM instead of the expected 16.0% and by 22.6% YoY instead of the expected 22.2%. 14% of the country's stores reported a lack of trade in April. However, many analysts believe that this reduction in sales is the peak, and in the future retailers will be able to recover losses while weakening social distance measures. Also, some of them have already adapted to new conditions, having switched to electronic commerce, which is growing at a significant pace.
JPY is strengthening against its main competitors – USD, EUR, and GBP.
Investors are focused on an extraordinary meeting of the Bank of Japan on measures to support the economy and combat the effects of the coronavirus epidemic. As expected, the regulator left the interest rate unchanged at –0.10% but increased its lending program for small and medium-sized enterprises by 30 trillion yen, bringing its full amount to 75 trillion yen, and also extended it for six months. Japanese Finance Minister Taro Aso and the head of the Bank of Japan Haruhiko Kuroda made a joint statement in which they recognized that the state of the Japanese economy is very difficult, and promised to use all the necessary fiscal and monetary policy instruments to deal with the growing economic consequences of the pandemic. The efforts of the government and the regulator are necessary, as the consumer price index in Japan continues to fall, reaching a negative value of –0.1% for April, while the Core CPI fell to –0.2%.
AUD is weakening against its main competitors – EUR, JPY, GBP, and USD.
AUD is under pressure, as a new aggravation of relations between China and the United States could lead to a worsening of the poor global economic conditions. The Australian economy could suffer double damage since China has repeatedly threatened with sanctions on the supply of Australian exports to its market. Against this background, the authorities are trying to reduce part of the quarantine restrictions to support the economy. Starting June 1, the administration of the most populous Australian state, New South Wales, will allow pubs, clubs, cafes, and restaurants to serve up to 50 customers at a time. Previously, their number should not exceed 10 people.
Oil prices have ambiguous dynamics. The morning decline was replaced by growth, which allowed recovering the losses partially.
The price is under the pressure of the threats by the US authorities to China in the event of the introduction of a new national security law that will increase Beijing’s control over Hong Kong. However, as China and the United States plan to continue work on the implementation of the first phase of the trade deal, investors' concerns fade. The refusal of the PRC from the target GDP growth rate also negatively affects the market. According to observers, it indicates a serious decline in the Chinese economy due to the coronavirus pandemic.