The dollar eased from a three-week high but looked set for a modest weekly gain as rising Sino-U.S. tensions and worries about a second wave of coronavirus infections rattled investors. As hopes wavered for a quick global recovery from the pandemic, the trade-sensitive Australian dollar was poised to snap five weeks of gains with a 1% drop, its first weekly loss since early April. It trades at $0.6464, just below the middle of the range it has kept all month. The kiwi was near a three-week low weighed down by talk of negative interest rates next year. It struggled to break through the 60 cents mark and sat at $0.5994. The yen was steady at 107.13 per dollar despite U.S. Federal Reserve officials dismissing the prospect of negative rates buoying the greenback. The dollar is up about half a percent on the yen this week and half a percent against a basket of currencies. The euro also hit an almost five-year low against the Swiss franc of 1.0503 francs as the crisis puts pressure on the single currency.
Gradual re-opening of the world’s economies has come with a dawning of how deeply the pandemic has damaged supply chains, labour markets and global demand. Data released today showed China’s April industrial output beating expectations but consumption remains low. China’s industrial output in April rose 3.9% from a year earlier, exceeding expectations for a 1.5% rise and expanding for the first time this year as its economy slowly emerges from its coronavirus lockdown. An already-dismal near-term U.S. economic outlook has darkened further as analysts forecast for a 35% annualised second-quarter contraction. Trump signalled a further deterioration of the US-China relationship by saying he has no interest in speaking to President Xi Jinping right now, adding that he was disappointed with China’s failure to contain the coronavirus. The yuan, which is highly sensitive to relations between the world's two biggest economies, touched a one-week low of 7.1026.
With the latest round of Brexit negotiations concluding today, the British government has confirmed it will not move from its red lines. For Boris Johnson, hurdles to an accord include the EU's demand for the U.K. to stick to its rules on goods and its call to continue access to British fishing waters and the role of EU courts. Little headway has been made after four days of talks. Just one more round of negotiations remains before politicians meet in June to decide if it is worth carrying on. Johnson has threatened to walk away by then if insufficient progress has been made. That would mean Britain could end its post-Brexit transition period on Dec. 31 without a free trade deal, leading to the reintroduction of customs checks and quotas. The British pound remained under pressure at $1.2210, after touching a five-week low of $1.2161 overnight after the British government reiterated its refusal to extend the Brexit transition deadline beyond December.
Asian stocks edged up but were on course to end the week lower as deteriorating U.S.-China relations add to uncertainties over how fast economies can recover as they start to emerge from lockdowns. U.S. S&P500 dipped 0.2% after the index gained 1.15% the previous day, recovering from a three-week low. European stocks are expected to follow with pan-European Euro Stoxx 50 up 1.21% and German DAX quoting 10473. FTSE is also on track to recover yesterday’s losses, currently at 5816.1.
