USD boosted by a jump in US yields

UK returns to recession after 11 years

Created: 12/08/2020

 

Britain’s economy shrank by a record 20.4% between April and June when the coronavirus lockdown was tightest, the largest contraction reported so far by any major economy, with a wave of job losses set to hit later in 2020. The UK entered recession as it suffered Europe’s highest coronavirus death toll as well as the highest daily total of cases since June 21.  British GDP shrank by 2.2% in the first quarter of the year, reflecting the lockdown that started on March 24. Last week the Bank of England forecast it would take until the final quarter of 2021 for the economy to regain its previous size, and warned unemployment was likely to rise sharply. London’s FTSE 100 rose as investors counted on BoE to further loosen monetary policy, also supported by a weaker pound.

 

The New Zealand central bank kept rates on hold as expected but it extended the duration of its bond buying program signalling an increase in future purchases. It also included a warning regarding negative rates. The kiwi dollar fell 0.5% and touched a month low of 0.6524 after four new cases of Covid-19 were found in Auckland, prompting prime minister Ardern to defer the dissolution of parliament and put the city into an immediate lockdown. NZD recovered later to 0.6540 as the rest of the country was placed into slightly looser level 2 restrictions. Investigations were zeroing in on the potential the virus was imported by freight.

 

The dollar inched ahead as a jump in US yields pushed it higher against safe-haven assets like the Japanese yen and gold. The yen fell 0.2% to 106.71 per dollar, its lowest since July 24. Gold dropped around 7%, well over 100$ in a single day, mainly during the Asia session but has recovered slightly at the European open at $1941 an ounce. Australia, being the world’s second gold producer, felt the pressure with Aussie down to 0.7126. Against the euro the greenback was a tad firmer at $1.1750 and against the pound it extended gains that followed the UK entering recession as well as a weak British jobs report to hit $1.3056 per pound.

 

US stock markets moved closer to record highs yesterday, after investors bet on a fresh round of government spending to lift the economy and counter the effects of the Covid-19 pandemic. The S&P 500, seen as the broadest measure of US investor sentiment, was just 16 points short of the all-time high reached in February. Recording its eighth day of consecutive gains, the S&P 500 was up 0.4% in morning trading, following an announcement by Donald Trump that he was considering cutting taxes on capital gains and income. Financial, industrial and energy stocks provided most of the gains. The Dow, which includes only 30 major companies, was up or 1.1%, to 28,103 but has since fallen below 28.000. European markets were also higher, with DAX following the S&P heading to February all-time highs. The FTSE 100 and French CAC index also made strong gains, though remain some way short of levels seen before the pandemic.