Euro still on the front foot

The euro briefly broke through $1.10 against the dollar yesterday before slipping back a little. However it has moved above this level again this morning, and further gains might now be in store. The single currency has also strengthened against sterling, getting up close to 90p, with the pound losing ground against the dollar too, falling back below $1.23. European equity markets, meanwhile, put in another positive performance, gaining almost 2%, while German 10-year yields continue to nudge higher and are currently trading at around -0.40%

Underpinning the euro’s gains was a proposal from the European Commission for a EUR 750bn recovery fund. This would see the Commission borrow on the markets with the monies raised going to EU countries most affected by COVID-19 (mostly in the form of grants) and to be  “repaid over a long period of time throughout future EU budgets – not before 2028 and not after 2058”

ECB member, Schnabel, said the Commission’s recovery fund proposal “is especially important as it will be geared to the future and will not only help countries to overcome the acute economic shock, but also to subsequently find their way back to a sustainable (growth) path”

Weighing on sterling yesterday were comments by the UK’s chief negotiator, David Frost, who said it may not be possible to reach a fisheries agreement with the EU by the deadline of June 30th, another indication perhaps of the apparently fraught state of the negotiations generally

The Fed’s latest Beige Book notes that “economic activity declined in all (its) Districts – falling sharply in most – reflecting disruptions associated with the COVID-19 pandemic…although many contacts expressed hope that overall activity would pick-up as businesses reopened (albeit) the outlook remained highly uncertain”

Date due today includes, in the US, a second estimate of first quarter GDP, jobless claims and capital goods orders in the US