Thursday 20 May, 2021

“The greenback continues its decline of recent weeks. As the spectre of inflation continues to loom, Fed minutes indicating that tapering of asset purchases may be on the cards in upcoming meetings failed to provide the dollar with a boost.”

Sam Cornford, Senior FX Dealer

Main Headlines

The Biden administration is unlikely to be able to stop the completion of the Nord Stream 2 gas pipeline from Russia to Germany after it waived sanctions on the company overseeing the project, drawing bipartisan criticism in Washington over fears that the project gives Moscow leverage over European nations. The decision comes as the US seeks to rebuild relations with Germany and other EU allies after relations deteriorated under Trump. Elsewhere, the House of Representatives voted to establish a commission to investigate the Capitol riot, bolstered by support from thirty-five Republicans who defied both Trump and party leaders to side with the Democrats.

Prime Minister Boris Johnson yesterday announced his “increasing confidence” that vaccines are working against all coronavirus variants, and that the Indian variant was not spreading as fast as previously feared, following the release of new data. After a period of concern that the new mutation could force the Government to delay the plan to end the majority of restrictions on 21 June, the recent data has raised hopes that lockdown rules and guidance will end as planned next month. Meanwhile, hospital admissions in variant hotspots remain flat and confusion concerning the UK’s “traffic light” travel system persists,

GBP

Sterling is weaker against the euro and stronger against the dollar in the early morning trade. In the biggest reform to Britain’s railway network in 25 years, the Government has announced an overhaul of the rail sector and the creation of a new railway operator, Great British Railways, which will be responsible for setting timetables, selling tickets in England and managing wider rail infrastructure. Private operators will continue to be contracted to operate most trains but the new organisation will aim to offer improved services, better value fares and increased accountability.

EUR

The euro is stronger against other major currencies overnight. The European bloc’s 27 countries have provisionally agreed to open up to fully vaccinated tourists and ease rules that bar non-essential travel. While still pending ministerial approval, the move signifies an attempt by the bloc to formalise common travel rules and will rely on a successful rollout of the planned EU vaccine passport or “digital vaccination certificate.” Meanwhile, EU trade ministers are due to discuss a dispute over steel and aluminium tariffs with US officials.

USD

The dollar is weaker against the euro and the pound this morning. The release of minutes from the Fed meeting in April show that officials were cautiously optimistic about a concerted economic rebound and a number indicated that tapering could be placed on to the table. That said, the minutes suggested that this is some time off until progress is made on employment and price stability. Meanwhile, President Biden has announced that he will unveil the first detailed budget proposal of his leadership on May 28.

Markets

Asian stocks were steady Thursday and Treasury yields held an advance as traders weighed Federal Reserve minutes that flagged the possibility of debate on scaling back asset purchases. Equities ended virtually unchanged in Japan, posted losses in Hong Kong and China, and outperformed in Australia. U.S. futures fluctuated after the S&P 500 pulled back for a third day. The Nasdaq 100 notched a small advance and European contracts were in the green. Elsewhere, the benchmark 10-year Treasury yield was steady after climbing to 1.67%. Commodities have slid amid concern about inflation potential curbs on monetary stimulus and China’s efforts to rein in raw material prices. Bitcoin posted a same-day plunge and rally of about 30% and oil edged up after slumping to the lowest in three weeks.

Main Economic Data/Central Banks/Government (All Times GMT)

8:00 a.m.: Saudi Arabia April CPI

8:00 a.m.: Germany April PPI

10:00 a.m.: ECB March current account

10:30 a.m.: Spain sells bonds

10:50 a.m.: France sells bonds

11:00 a.m.: ECB’s Lane, Eurogroup chief Donohoe speak

11:05 a.m.: BOE’s Cunliffe speaks

1:50 p.m.: ECB’s Lagarde, Holzmann, IMF’s Georgieva at event on gender

2:30 p.m.: U.S. initial jobless claims

South Africa rate decision

Arctic Council Ministerial meeting

Corporate Events

Sohn Investment Conference in Hong Kong

U.S.’s Raimondo holds summit on chip shortage

Earnings and sales updates include EasyJet, National Grid, Kingfisher, Dufry, Bouygues, Royal Mail, Tencent, Applied Materials