Foreign Exchange Market Update

May 29, 2020

U.S. (US): Consumer Sentiment Improves Slightly Less Than Initially Estimated

Data released on Friday showed consumer sentiment in the US improved slightly less than initially estimated. The report showed the CSI for May was downwardly revised to 72.3. Economists had expected the index to be upwardly revised to 74.0. Despite the unexpected downward revision, the CSI is still above the April reading of 71.8. The slight uptick by the CSI came as the current economic conditions index jumped to 82.3. On the other hand, the report showed the index of consumer expectations slumped to 65.9 in May. One-year inflation expectations surged up to 3.2% in May, while five-year inflation expectations rose to 2.7%. 05/29/2020 – 07:51AM (RTTNews)

European Union (EU): Eurozone Inflation Nears Zero; EU seeks tougher China policy, concerned by Hong Kong law

Euro traded 1.1123 at against USD at 9:00 am PST. 
 
EU moved close to stagnation in May, driven by a sharp fall in energy prices. Inflation slowed to 0.1%, lowest since June 2016. The May inflation rate came in line with expectations. Headline inflation remained well below ECB’s target of "below, but close to 2%." On a monthly basis, consumer prices edged down 0.1%. The severe economic fallout is having a deflationary effect, which means the ECB is likely to stay in a crisis-fighting mode for some time to come. ECB is expected to increase Pandemic Emergency Purchase Program as soon as next week. Among big-four economies, Spain and Italy reported negative rates of inflation and Germany and France reported the slowest price growth. Germany's inflation slowed to 0.5%. France's inflation halved to 0.2%. Spain's HICP fell 0.9%. Italy's HICP dropped 0.2% annually. 05/29/2020 – 05:04AM (RTTNews)

EU foreign ministers agreed to toughen their strategy regarding China on Friday to counter Beijing’s assertive diplomacy against a backdrop of concern about China’s new security law for Hong Kong. EU foreign ministers met for their first discussion before the two EU-China summits this year, one at the end of June and another in September. The EU is trying to find a middle path between U.S.-Chinese rivalry, but the bloc is also divided internally over China. Next month, EU is expected to come forward with guidelines on ways for EU governments to potentially limit China’s access to public tenders in Europe, as a way to pressure Beijing. 05/29/2020 – 02:13AM (RTTNews)

United Kingdom (UK): No Brexit Breakthrough Expected At Next Set Of Talks

British Pound traded at 1.2340 against USD at 9:00 am PST. 

The EU and UK are likely to have to engage in accelerated Brexit talks over the summer due to a stalemate, neither side expects a breakthrough at the next round of talks. UK heads into another round of Brexit talks ahead of the June 18-19 EU summit by which time London needs to make up its mind about asking for an extension to the transition agreement. UK officials have repeatedly said they won’t do so, but there’s not much time left until the end of December when UK and the EU part ways with or without a trade deal. UK says an agreement on fisheries might not be ready by July and it is down to Brussels to break a fundamental impasse. The EU urges UK to make a bigger effort and be more realistic about what it can achieve in these talks. Due to back and forth Brexit talks, GBP is close to its lowest in nearly three decades. And as if a potentially messy Brexit was not enough, GBP is also grappling with the prospect of negative interest rates, a deep recession and a growing pile of debt. 05/29/2020 – 02:20AM (RTTNews) 

China: China May Buy Less American Farm Products If U.S. Issues Severe Response

Onshore Chinese Yuan traded at 7.1348 per USD and offshore Chinese Yuan traded at 7.1611 per USD at 9:00 am PST.

China concluded its closed-door annual meeting of parliament, with top officials making clear that employment is the top priority. Fiscal stimulus worth more than 4% of GDP has been commissioned, primarily to boost jobs and incomes. China may reduce its imports of agricultural products from the US, if Washington issues a severe response to Beijing’s push to impose national security laws. President Trump has vowed a tough response and will hold a news conference on China on Friday. If Trump announces tough sanctions on Beijing, that could derail the trade deal the two countries have worked on for almost two years, as any worsening in relations could deter importers from buying U.S. farm goods. If the U.S. countermeasures are severe, China probably will reduce its buying of U.S. products. If the measures are mild, trade may not be affected. China has already bought some U.S. soybeans and corn in several rounds of purchases this year, but the typical peak period for Chinese purchases of U.S. crops comes after harvest in the fall. Those purchases may now be in doubt. 05/29/2020 -5:13AM (RTTNews)