EU negotiations between European Union leaders on a recovery fund that could lift the bloc out of the current recession continue for a fourth day.
The EU summit was initially due to last two days. The 27 EU heads struggle to strike a deal on the 2021-27 budget, proposed at above 1 trillion euros. The main bone of contention is a recovery fund worth 750 billion euros, meant to help rebuild southern economies most affected by the pandemic.
An attempt to reach a compromise failed on Sunday. A group of wealthy northern European states pushed during the summit for a smaller recovery fund. The north rejected a deal for 400 billion euros in grants – down from a proposed 500 billion.
G20 finance officials vowed on Saturday to continue using “all available policy tools” to fight the coronavirus pandemic. They warned that the outlook remains highly uncertain.
In the United States, Congress will begin debating a new aid package this week. Several states in the country’s South and West imposed new lockdowns to curb the virus.
The country’s fragmented response to the coronavirus pandemic emerges as a chief risk to any sustained global recovery. For other major economic powers, that is a weight added to their own struggles with the economic fallout. The U.S. economy accounts for about a quarter of world GDP. The IMF projected U.S. GDP will shrink this year by 6.6%, in line with many analysts’ projections.
This week saw British GDP data for May rise less than expected. Poor data prompted investors to doubt the fiscal stimulus measures already announced will be enough to prop up the economy. Brexit negotiations will resume this week.
START TRADINGLQDFXperts – EU negotiations on rescue fund in progress
EU leaders have made progress in Brussels after three days of talks. Worries about rising numbers of coronavirus infections spurred a broader risk-off move.
EUR/USD gained over 1% last week, its strongest gains since early June. The euro continues to gain ground and is up 1.7% in July. The pair closed the week above 1.14 for the first time since January, as the US dollar continues to struggle. A positive outcome at the EU negotiations on the recovery fund should inject further confidence in the euro. A deal would make the euro more attractive as a reserve currency.
After posting two winning weeks, GBP/USD reversed directions last week and posted small losses. The pound remained the worst performing G10 currency this week, down 0.8% against the dollar. The British currency also fell 2% against the euro – its biggest loss since the week beginning May 11. Britain’s bleak economic outlook, Brexit uncertainties and the possibility of negative interest rates still weigh on sterling.
Dollar/yen was almost unchanged last week, as the pair closed at the 107 line. The Bank of Japan maintained the policy balance rate unchanged at -0.10%. The bank’s economic forecasts were pessimistic, but USD/JPY did not show much reaction.
The Aussie clocked its fourth consecutive weekly gain. AUD/USD posted slight gains last week, as the pair tested the symbolic 70 line. Market attention will be fixated at the RBA’s minutes of its July policy meeting due out on Tuesday (21.07). On Thursday (23.07), the Australian government will unveil a ‘mini-budget’ where it is expected to lay out a fiscal stimulus roadmap.
The USD/CAD showed little movement for a second successive week. The Canadian economy is showing tentative steps towards recovery but, at the same time, lower oil prices are weighing on the Loonie.
The week ahead – PMIs and Central Banks Policy Meetings Minutes set the tone
The upcoming week features PMIs in the US, UK and the eurozone. Further, the central banks of Japan and Australia will release the minutes of their policy meetings.
- Investors are waiting for the Reserve Bank of Australia Monetary Policy Meeting on Tuesday (21.07). The tone of the minutes could affect the movement of AUD/USD.
- On Thursday (23.07) investors turn their attention to the US Unemployment Claims. Initial US employment claims continue to drop. Analysts expect another small drop in the upcoming release.
- Friday (24.07) is overflowed with data. Investors are waiting for: UK Manufacturing PMI, Eurozone PMIs (France, Germany, Euro zone), UK Services PMI, US Manufacturing PMI, US Services PMI.
In Germany and the eurozone, manufacturing PMIs rose sharply in May, but remain in contraction territory. After showing deep contraction in April, with a read of just 12.3, the UK Services PMI has recovered. US Manufacturing PMI improved to 49.8 in June, climbing sharply from 39.8. In June, the US Services PMI climbed from 36.9 to 47.9. The estimate for July stands at 51.0.
Follow this week’s economic calendar.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, CNBC, BBC, The Guardian