Striking heroism of the euro and restrained optimism of the pound


After falling to the lowest levels since May 2017, the pair EUR/USD was able to recover and close yesterday around 1.1180, where it is consolidating today.

Investors' concerns about the increased tension in trade relations between Washington and Beijing, as well as concerns about the prospects of the US economy provoked the sale of the dollar on Thursday, against which the euro managed to win back the previously lost points.

The weak data on housing sales and business activity in the manufacturing sector of the US economy released yesterday caused talk about the possible onset of a recession in the country next year. On these rumors, the yield of 10-year treasuries sank to 2-year lows at 2.30%, and the USD index retreated from annual highs near 98.


It should be recognized that there is no reason for a significant strengthening of the euro.

Recent economic releases for the eurozone have been weaker than expected. Business activity in the services and manufacturing sectors in Germany and the currency bloc as a whole has slowed down. The IFO report on Germany also showed a deterioration: the business climate index fell to its lowest level since 2014. The US and China trade war affected the mood of the German business circles, and, according to the head of the IFO Clemens Fuest, there is a reason for concern, especially on the manufacturing sector.

In addition, until the end of May, the "European" will not have guidelines in the form of meetings of the European Central Bank, which will take another decision on monetary policy only in June.

The pound also managed to win back its losses against the dollar against the background of reports of the impending resignation of British Prime Minister Theresa May.

The GBP/USD pair found strong support near 1.2600 and was able to recover most of the points after falling to 4.5-month lows.


Today, T. May announced that she will resign as leader of the ruling conservative party in the United Kingdom on June 7.

Until her successor is elected, T. May will continue to perform the duties of the head of the Cabinet of Ministers.

The election process for a new Tory leader will begin on June 10. The main candidate is former foreign Minister Boris Johnson.

After the statement of T. May, the pound against the dollar jumped by 0.5%, exceeding the level of $1.27, but then stopped the growth.

Apparently, investors fear that the successor of T. May could withdraw Foggy Albion from the EU without a deal or call early parliamentary elections.

"T. May's resignation is most likely already in the quotes, but I am not sure that the market is ready for B. Johnson," said Andrew Cole from Pictet Asset Management.

"The market's attention is already turning to what will happen after the resignation of T. May. We still see further potential for the pound to decline even after the recent sharp sell-off," said Fritz low, currency strategist at MUFG Bank.

According to Russell Silberston, portfolio Manager of Investec Asset Management, the British currency can test levels below $1.20 if the chances of a "hard" Brexit or the probability of holding general elections continue to grow.

"In the short term, the only thing that can work in favor of the pound is any benefits for the pro-European parties in the elections to the European Parliament, which are held this week," he said.

"The next Prime Minister may find himself in the same impasse faced by T. May, which will increase the risk of a disordered UK exit from the EU and increase the loss of the pound. However, it is possible that the British Parliament will eventually vote for the abolition of Brexit", – said Luke Hickmore of Aberdeen Standard Investments.

He expects the pound to stabilize at $1.30–1.35.

The material has been provided by InstaForex Company -