Dollar ends lower on improved risk sentiment, euro rallies on Franco-German proposal

Market Review - 20/05/2020  23:46GMT  

Dollar ends lower on improved risk sentiment, euro rallies on Franco-German proposal

The greenback ended the day lower against majority of its peers on Wednesday as a rally in U.S. stocks boosted risk sentiment. (Dow Jones ended the day higher by 369 points or 1.52%). Euro extended its recent winning streak on news of the recently announced Franco-German recovery fund proposal.  
  
Reuters reported the Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.     The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.   
  
Versus the Japanese yen, although dollar extend its overnight losses to 107.65 in Australia, price rose to session highs at 107.98 in Asia. However, the pair then erased its losses and tumbled to 107.34 in New York morning on usd's broad-based weakness together with fall in U.S. Treasury yields before rebounding to 107.56 near the close on short-covering.  
  
The single currency traded with a firm bias in Asia and extended its recent winning streak on the Franco-German recovery fund proposal and ratcheted higher in Europe on broad-based buying in euro. Price then rose to a 2-1/2 week peak at 1.0999 in New York morning before retreating to 1.0972 on profit-taking and then moved narrowly.  
  
The British pound went through a roller-coaster ride. Despite rebounding to 1.2277 in Asian morning, price fell to session lows of 1.2222 in early European morning on soft UK inflation data. The price then erased its losses and rose in tandem with euro to 1.2287 in New York morning but only to retreat back to 1.2226 in New York on renewed sterling's weakness following comments from the Bank of England's Governor, Andrew Bailey, and then moved sideways.  
  
Reuters reported the Bank of England is looking carefully at the experience of other central banks with negative interest rates, Governor Andrew Bailey said on Wednesday.     Bailey said the BoE was not ruling out taking rates below zero for the first time, but he told lawmakers that the British central bank was "not ruling it in" either.   
  
On the data front, Reuters reported Britain's inflation rate fell sharply in April to its lowest since August 2016 as retailers resorted to discounts in the face of the coronavirus shutdown, global oil prices slumped and regulated water and power tariffs slid.    The consumer price index dropped to an annual rate of 0.8% in April from 1.5% in March, official data showed on Wednesday.    Economists polled by Reuters had mostly thought the CPI would fall to 0.9%.  
  
Data to be released on Thursday:  
  
Australia manufacturing PMI, services PMI, Japan exports, imports, trade balance, Jibun Bank manufacturing PMI, France market holiday, Markit manufacturing PMI, Markit services PMI, Germany market holiday, Markit manufacturing PMI, Markit services PMI, Swiss market holiday, EU Markit manufacturing PMI, Markit services PMI, UK manufacturing PMI, services PMI, CBI trends orders, Canada new housing price index, and U.S. initial jobless claims, Philadelphia Fed manufacturing index, Markit manufacturing PMI, Markit services PMI, existing home sales, leading index change.