Safe-haven currencies on defensive, sterling soft on spending plan

Safe-haven currencies were on the back foot on Tuesday as hopes of an economic turnaround boosted stock prices while sterling was under pressure after British Prime Minister Boris Johnson promised a “Rooseveltian” boost to public spending.

Spurring fresh optimism on the US economy was pending home sales data, which showed that housing market activity had quickly recovered in May from a plunge triggered by the pandemic.

Pending home sales, based on contracts signed last month, surged 44.3 per cent, compared to economists' forecast for 18.9 per cent rise.

Wall Street shares were also buoyed by a 14 per cent surge in Boeing as the embattled aircraft maker began a series of long-delayed flight tests of its redesigned 737 MAX.

The dollar has climbed to 107.59 yen, having touched a three-week high of 107.885, though it was capped by its 100-day moving average around that level.

The safe-haven Swiss franc eased to 0.9511 per dollar and 1.0697 per euro.

The euro stood at $1.1244, having gained a tad against the US currency on Monday.

Sterling traded at $1.2297, after sliding to a one-month low of $1.2252 on Monday on concerns about how Britain's government will pay for its planned infrastructure program following Prime Minister Johnson's promise to increase spending.

“This is the moment for a Rooseveltian approach to the UK,” Johnson told Times Radio on Monday, referring to former US President Franklin D. Roosevelt's “New Deal” programme, which included a raft of job-creating public works projects to help the United States recover from the Great Depression.

There are also doubts about whether Britain will seal a trade pact with the European Union as little progress has been made in agreeing on Britain's future relationship with the bloc, which it exited on Jan. 31

The British currency hit a three-month low against the euro, which rose to as high as 0.9175 pound on Monday. The common currency last stood at 0.9138 pound.

All in all, the dollar index was little changed at 97.444.

US Federal Reserve Chair Jerome Powell said late on Monday the outlook for the world's biggest economy is “extraordinarily uncertain” and will depend both on containing the coronavirus and on government efforts to support the recovery.

The epidemic showed little sign of abating as Arizona ordered the closure of bars and gyms, joining other sun belt states like Florida and Texas in reversing reopenings. Los Angeles County also recorded an “alarming” one-day spike of new Covid-19 infections.

“We've seen cases rising again even in countries that appear to have contained the disease such as Japan and Australia,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank. “The bankruptcy of Cirque de Soleil highlights the fact that the show biz and tourism sector will continue to suffer. The economy is still barely tottering,” she said.

The entertainment group filed for bankruptcy protection on Monday as the pandemic forced the famed circus operator to cancel shows and lay off its artistes.

On the diplomatic front, the United States began eliminating Hong Kong's special status under US law on Monday, halting defence exports and restricting the territory's access to high technology products as China prepares controversial national security legislation for Hong Kong.

The offshore Chinese yuan barely budged at 7.0746 per dollar .

-Published on June 30th, 2020