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US-China tensions rise

USD

The USD opens the week higher this morning as concerns rise over US-China relations and traders move from risk to safe-haven areas. President Trump said the US will produce a report that will prove China made a “mistake” causing the spreading coronavirus pandemic. Traders will now be looking for what retaliations could be forthcoming from the US and whether there could be new tariffs on Chinese goods. Adding to these concerns, traders are also concerned about the re-opening of the US economy. Many states across the US have eased restrictions in an attempt to get the economy moving again, but health officials remain concerned that there could be a re-emergence of the virus. DOW Futures are lower this morning, indicating a move lower of around 300 points when the markets open later today. The next few days will be critical for investors. US Treasury yields are also feeling the tension of a US-China dispute, with the 10-year note trading lower at 0.6068% and the 30-year note trading at 1.2446%.

EUR

EUR/USD is trading off its overnight highs, weak eurozone PMIs have added pressure to the single currency. PMI releases from eurozone countries were lower across the board, with France down to 31.5 from 43.2, Italy coming in at 31.1 from 40.3, Germany coming in at 34.5 from 45.4, and Spain coming in at 30.8 from 45.7. These numbers are being touted as not as bad as the lows experienced during the 2008-2009 crisis. All of these numbers are well below the 50-point level which separates expansion from contraction. Many European countries are moving forward towards returning to “normal”, as recent disease statistics show the virus ebbing in Europe. Fears of a second round of the epidemic persist and that is keeping pressure on the EUR. 

GBP

GBP/USD is trading lower as well as the USD safe-haven trades are moving the market. UK policymakers are expected to decide in the next few days what to do with the current lockdown, which expires Thursday. The government continues to work towards a better testing application to help curb new viral outbreaks. Reports of virus-related deaths have moved lower but some are stating this is the “weekend effect”, as counting of cases seems to be delayed over the weekend. PM Boris Johnson has declared the worst of the virus has passed. He is being pressured by many in the Conservative party to ease restrictions, as well as extend the Brexit transition period. Talks between the UK and EU are expected to continue via video this week, but little progress has been made and that is adding to concerns on both sides. The Bank of England meets this Thursday but there are no rate moves expected.

JPY

USD/JPY is trading lower in a tight overnight range as Japan is on holiday today. Safe-haven buying by traders is the reason for the USD/JPY move. Earlier today, Prime Minister Abe said that the government will extend the state of emergency to May 31st. The situation will be re-assessed in 10 days. According to Abe, the reduction of infections due to the virus is not yet at the required levels. He has also requested from experts a “detailed roadmap” to start the economy which he wants to occur within the next two weeks. 

CAD

USD/CAD trading higher this morning as global tensions and lower oil prices keep pressure on the loonie. During early overnight trading, U.S. West Texas Intermediate crude fell to $18.10, down 5.8% after rising 17% last week. Brent crude futures fell 24 cents down to $26.20, after rising 23% last week. Continued concerns over the “global oil glut” have kept pressure on oil prices and U.S.-China trade tensions are adding to the oil price fall. Adding to the loonie’s woes, Canadian unemployment levels are expected to rise and the forecast is that the economy has lost 2.75 million jobs in April, with an unemployment rate of 16%. These numbers will be released later this week on Friday. These numbers will add to the purchase of USD and put the CAD under further pressure. While the US and Canada are both feeling economic damage, but the expectation is for the US to rebound quicker than Canada.

CNY

China is closed today in celebration of Golden Week and will re-open later this week. Comments over the weekend by President Trump regarding the handling of the coronavirus in China are pressuring markets all over the globe. Adding to the pressure on China from the US are comments from UK Defense Minister Wallace who has stated that China has questions to answer regarding the virus and that China needs to be “more transparent” regarding the virus. The country has reported 3 new virus cases on Sunday following 2 new cases on Saturday. There have been no new reports of virus-related deaths in the last two weeks. All market observers are now awaiting the reaction of the Chinese government for the accusations made by the US. This situation is far from over.

Quick Insights

USD: USD higher on safe-haven buying.

USD: USD higher on safe-haven buying.

EUR: Terrible PMI releases pressure EUR.

EUR: Terrible PMI releases pressure EUR.

GBP: GBP lower ahead of lockdown expiration on Thursday.

GBP: GBP lower ahead of lockdown expiration on Thursday.

JPY: PM Abe extends lockdown to May 31.

JPY: PM Abe extends lockdown to May 31.

CAD: Lower oil prices, deteriorating economy pressure CAD.

CAD: Lower oil prices, deteriorating economy pressure CAD.

CNY: Markets await Chinese response to US claims on viral outbreak.

CNY: Markets await Chinese response to US claims on viral outbreak.

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