Dollar falls to 2-month low on risk-on sentiment

Market Review - 28/05/2020  23:49GMT  

Dollar falls to 2-month low on risk-on sentiment

The greenback pared its initial gains made in Asia and ended the day lower against majority of its peers on Thursday on return of risk appetite due to gain in global stocks. Euro resumed its recent winning streak on continued optimism over the EU Commissions coronavirus recovery fund. However, dollar staged a recovery in New York after U.S. Trump's comments on China.  
  
Reuters reported President Donald Trump on Thursday said he will give a news conference on China on Friday, as his administration moves to pressure Beijing over its treatment of Hong Kong.   Secretary of State Mike Pompeo told Congress on Wednesday that China has undermined Hong Kong's autonomy so fundamentally that the Asian financial center no longer qualifies for its special status under U.S. law.    
Trump could take a variety of punishing measures, including imposing tariffs, limiting visas and other economic penalties.  
  
Versus the Japanese yen, although price edged up to session highs at 107.89 at Asian open and traded sideways in Asian morning, price erased its gains and dropped to 107.58 in New York morning on usd's broad-based weakness before moving narrowly.  
  
The single currency briefly rose above Wednesday's high at 1.1030 to 1.1035 on continued optimism of EU Commission's recovery fund plan before dropping to session lows at 1.0992 in European morning on profit-taking. However, the pair then erased its losses and rallied to a near 2-month high at 1.1093 in New York on usd's broad-based weakness before pasring intra-day gain after U.S. Trump's comments.  
  
The British pound swung wildly in hectic trading as despite initial retreat from 1.2276 to 1.2249 in Asia, price rebounded to 1.2280 at European open, then marginally higher to 1.2284 in European morning before falling to session lows at 1.2234 on dovish comments from Bank of England policymaker Michael Saunders. However, the pair then erased its losses and rallied to intra-day high at 1.2346 (Reuters) in New York on usd's weakness together with cross-buying of sterling.  
  
Reuters reported Bank of England policymaker Michael Saunders, who voted unsuccessfully for an increase in the central bank's bond-buying programme this month, said on Thursday it was better to pump too much stimulus into the economy rather than too little.   "It is safer to err on the side of easing somewhat too much, and then if necessary tighten as capacity pressures eventually build, rather than ease too little and find the economy gets stuck in a low inflation rut," he said in a speech.    There was also a risk of long-term unemployment problems if the BoE failed to provide enough stimulus, Saunders said.  
  
In other news, Reuters reported Britain is quite a long way from agreeing a free trade deal with the European Union and will at some point have to prioritise its preparation for leaving the bloc without a deal, its chief negotiator said on Thursday.   "We are quite a long way from the broad outline of an agreement that we hoped to be at at this point," David Frost told a select committee in the House of Lords. "I hope we can make some constructive process at the next round.    "At some point (we will have a) need to provide maximum certainty to businesses and economic operators about what is going to happen at the end of the year. At some point prioritising readiness for the end of the year will loom larger than the negotiating process but we're not at that point at the moment."  
    
On the data front, Reuters reported the number of Americans filing for unemployment benefits held above 2 million last week for a 10th straight week amid job cuts by U.S. state and local governments whose budgets have been decimated fighting the COVID-19 pandemic and more second-wave layoffs in the private sector.    Initial claims for state unemployment benefits totaled a seasonally adjusted 2.123 million for the week ended May 23, from a revised 2.446 million in the prior week, the Labor Department said. Economists polled by Reuters had forecast initial claims falling to 2.1 million in the latest week from the previously reported 2.438 million.  
  
Data to be released on Friday :  
  
UK GfK consumer confidence, nationwide hose prices index, Japan Tokyo core CPI, CPI, unemployment rate, industrial output, retail sales, construction orders, housing starts, consumer confidence, Germany import prices, retail sales, France consumer spending, GDP, CPI (EU norm), CPI, producer prices index, Swiss KOF indicator, Italy GDP, consumer price index, CPI (EU norm), EU HICP, core HICP, U.S. personal income, personal spending, core PCE price index, PCE price index, goods trade balance, wholesale inventories, Chicago PMI, University of Michigan sentiment, and Canada GDP, producer prices, budget balance.