Dollar drifts higher

The dollar strengthened gradually against the euro and sterling over the latter part of last week, as equity markets headed south, finishing Friday trading at around $1.12 and $1.2350 respectively – a gain of circa 1.5 cents and 2.5 cents from its intra-week lows – and leaving the pound hovering around 91p against the single currency at the close of the day’s play

US equity markets ended the week on a soft note, shedding about 2.5% on Friday amid a continuing increase in the number of reported COVID-19 cases in some US states. Core bond yields fell, not surprisingly, with US 10-year yields dropping by more than 5bps to under 0.65% and equivalent Germany yields faring similarly to close just below -0.50%

Consumer spending in the US bounced back in May, increasing by 8.1% after falling by more than 12% in April. Meanwhile, the annual rate of PCE inflation eased further last month to stand at just 0.5%, while the core (or underlying) rate held at a multi-year low of 1%, both well below where the Fed would like so see them (at around 2%)

ECB member, Isabel Schnabel says that without the central bank’s emergency bond purchases programme “we would probably have found ourselves by now in the middle of a severe financial crisis with unforeseeable consequences for the economy, employment and price and wage developments in the euro area”.

Data due this week include manufacturing and services PMIs in the main economies on Wednesday and Friday respectively, while the US employment report for June is released on Friday