Better than expected US economic data outweighs China’s authoritarian moves against Hong Kong
Concerns of a deteriorating relationship between the US and China were overtaken by better than expected durable goods orders and lower continuing claims for unemployment in the US. Financial markets chose a risk-on mode in the belief Trump will not torpedo the economic recovery by retaliating heavily to China’s imposition of stricter rule over Hong Kong.
“If you set out to be liked, you would be prepared to compromise on anything at any time, and you would achieve nothing.”
May 28, 2020
EUR/USD 1.1033 GBP/USD 1.2286 USD/CAD 1.3781 AUD/USD 0.6642 USD/JPY 107.77 USD/CNH 7.1630 USD/ILS 3.5144 USD/MXN 22.2855 USD/CHF 0.9685 USD/INR 75.7725
Revised Q1 GDP data showed the US economy shrinking -5.0% vs. -4.8% from the first reading. US durable goods orders fell for a third month to -5.8% excluding transportation and defense items. The April reading was much better than the -10% expected. Initial Jobless claims for the week came in at 2.1M which was expected, however continuing claims fell much more than expected as some parts of the American workforce went back to work following the lockdown.GBP
The pound strengthened despite two Bank of England officials suggesting the UK economy will suffer badly and more monetary stimulus may be needed. The financial markets continue to price in the possibility of negative interest rates in the UK.EUR
The euro continued to show some strength as the massive 750B euro stimulus package gets debated. FX speculators have cut their bearish bets against the euro over the past week.CAD
The Canadian dollar continued to strengthen despite slightly weaker oil prices. Financial market participants have begun to consider the oil price beyond the front month futures contract thereby reacting less to daily swings in the volatile current month contract.ASIA/PACIFIC
The US may remove Hong Kong’s special trading relationship status with the US leading to a significant impact on the island’s economy. The Trump administration considers Hong Kong’s semi-autonomous status in jeopardy after China plans to impose national security laws bypassing Hong Kong’s local Legislative Council. The Hong Kong dollar’s exchange rate with the US dollar is essentially pegged – for now.
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