The U.S. dollar performed strongly this week, as the new crown epidemic intensified again as the weather in the northern hemisphere turned cold, while the development of vaccines and treatments faced setbacks. In addition, the United States’ expectations for a new set of stimulus plans before the presidential election were almost shattered, leading to risks Willing to cool down.
Dollar, British Pound and Euro banknotes
Nothing is hardest hit by the epidemic than the European currency. As new cases in Europe have surpassed the United States, Germany and France have already implemented or will soon implement stricter epidemic prevention measures. This raises concerns that the pace of economic recovery will be dragged down by the epidemic and will force the European Central Bank. Expanding easing to provide support has caused the euro to fall nearly 1% against the dollar this week.
The pound sterling on the other side of the English Channel also fell this week. On the one hand, it was affected by the epidemic. On the other hand, the Brexit trade negotiations had not yet made a major breakthrough. Market tensions intensified during the transition period at the end of the year. It fell by 0.9%, and the weekly line has changed from rising to falling. At the beginning of the week, it was optimistic that the gains caused by the negotiation results would be eroded.
The major currency that performed the worst this week was the Australian dollar. It was first hit by the news that China stopped importing Australian coal, and then hit hard by the easing intention of the governor of the Bank of Australia, with a weekly drop of more than 2%.
Looking forward to the coming week, many major central bank officials will make speeches, and all walks of life will look for future monetary policy directions. On the other hand, the development of the new crown epidemic and the US presidential election will continue to attract market attention.
The epidemic in Europe has intensified, and countries have strengthened controls
The shadow of the new crown epidemic once again shrouded the global financial market this week. Forced by the rapid increase in the number of new cases, France announced a large-scale curfew covering nearly one-third of the country’s population. German states have agreed to implement stricter measures. Although the British Prime Minister Johnson vehemently rejected calls for a nationwide blockade, he has also strengthened the anti-epidemic blockade restrictions from midnight on Friday. The epidemic in Europe is rapidly escalating, causing the euro and pound to be hit this week.
To make matters worse, Johnson & Johnson (J&J) has suspended clinical trials of a new crown vaccine due to unexplained illnesses among subjects; Eli Lilly has also suspended clinical trials of antibody therapy. A vaccine trial by AstraZeneca in the United States has been suspended for more than a month.
ING foreign exchange strategists said that with the surge of new crown cases in Europe, leading to the implementation of restrictions again, investors are lowering their assessment of European economic growth.
ING pointed out in a report to customers, “During the first phase of the assessment in September, the market ruled out the possibility of a V-shaped recovery. Now, as the number of new crown cases rises across the board, and it is believed that the winter will be long and difficult, the market will be more Leaning towards the possibility of a W-shaped recovery has the risk of forming a double bottom. This is reflected in the general weakness of European and economic cycle currencies and the support of the US dollar.”
Another factor that affects the market’s willingness to take risks is the new round of fiscal stimulus in the United States. Last week, the White House proposed a $1.8 trillion stimulus proposal in consultation with Speaker of the House of Representatives Pelosi. Rejected because she insisted on the aid scale of 2.2 trillion US dollars. Although U.S. President Trump has directed Treasury Secretary Mnuchin to propose a larger bailout proposal, Senate Republican Leader McConnell played down this idea.
This shows that the US stimulus plan is stuck in a stalemate in the tripartite negotiations between the White House, the Republican Party in the Senate, and the Democrats in the House of Representatives. It is not easy to pass it before the November 3 election. This dampened investor confidence and boosted buying demand for safe-haven assets. The dollar index rose to a two-week high this week.
British Brexit trade negotiation barrier
Before the EU leaders’ summit on Thursday, the pound was originally in an upward trend. The market expected some results from the negotiations between the UK and the EU on post-Brexit trade arrangements. However, the EU kicked the ball to the UK on Thursday and demanded the UK Either compromise on a new economic partnership, or be prepared to deal with trade disruptions in less than 80 days. Britain reacted coldly to this, saying it was “very disappointed.” As expectations fell, the pound faced a strong sell-off, and the gains at the beginning of the week were all taken back, and the week turned into a decline.
British Prime Minister Johnson has said that he is willing to end the transition period without reaching a trade agreement, but many people in the market think he is bluffing. Despite the rising volatility, the pound did not experience a sharp drop as it did before the deadline for negotiations on the Brexit agreement in 2018 and 2019.
There is no shortage of people in the market who see this fall in the pound as a buying opportunity. Justin Onuekwusi, portfolio manager of Lawcom Investment Management, said, “Our position in the pound is neutral, but based on these negative news, we may consider taking a reverse operation against the pound, because as long as an agreement is reached, it will trigger a wave of pressure relief. rise.
The Australian dollar suffered a triple blow
The Australian dollar has suffered successive blows this week. First, last weekend, China announced that it would reduce the foreign exchange risk reserve ratio for forward foreign exchange sales to zero. This move will help short the yuan, leading to the acceptance of innovation between the Australian dollar, and then it was reported that China stopped importing. In Australia’s thermal coal and coking coal, the Australian dollar fell nearly 1% against the US dollar. Then came the talk of the Governor of the Bank of Australia Lowe on Thursday, deepening market expectations of the bank’s interest rate cuts and expansion of debt purchases, resulting in a cumulative decline of the Australian dollar this week. 2.2%, the biggest weekly decline since the end of September.
Westpac analyst Bill Evans said that Lowe’s Thursday’s talk was “very obvious from a future policy perspective and changed the situation”. He expects the Bank of Australia to cut interest rates by 15 basis points to 0.1 at its November 3 policy meeting. %. Analysts at Evans and other major Australian banks also believe that the Bank of Australia may expand its quantitative easing program to include long-term government bonds.