The United States dollar started the week a little bit higher in Europe. It was albeit in modest volumes, being depressed by public holidays in the United States and the United Kingdom. There was a backdrop of simmering tensions between China and the United States.
The dollar index tracks the greenback against a basket of developed market currencies. Thus, by 0745 GMT (3:45 AM ET), the dollar was up 0.1% at 99.975. It drifted to its highest in a week.
The Swiss franc and Kiwi are two currencies at the opposite ends of the risk spectrum. Thus, with the Swiss franc and the kiwi faring worst, the dollar’s gains were narrow but wide-ranging. USD/CHF pair rose by 0.3% to 0.9734.
The Memorial Day weekend in the United States muted news flow out of that country. Nevertheless, against the Chinese yuan, the dollar drifted back towards its March high. This happened after pro-democracy protests erupted again in Hong Kong. Thus, there was a sizable response from local security forces.
By 3:45 AM, in the offshore market, the dollar was at 7.1552, up by 0.1%.
The data confirmed that Germany, the currency union’s biggest economy fell into recession in the first quarter, and the euro remained sluggish. This happened because the GDP (gross domestic product) contracted by 2.2%. The data is arguably somewhat backward-looking, however. However, hopefully, more pressure will be put on the release of the Ifo business climate in May. It is due at 4 AM ET.
Nordea Analysts argued, in a weekly preview, that the euro must price in any benefits coming from the German-Franco proposal. The proposal is for issuance of joint debt and modest fiscal transfers for funding the European Union’s coronavirus recovery fund. It may represent a step towards central fiscal activities at the European level.
Andreas Steno Larsen of Nordea argued that the lack of enthusiasm for the euro reflects the hurdles that the German-Franco plan is still facing.
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