Dollar in demand amid high Sino-American tensions, thin liquidity expected

Here is what you need to know on Monday, May 25:

The new week has kicked off with dollar strength as the US and China have kept tensions high. Thin liquidity and potential erratic movements may occur as the US and UK are on holiday.

Sino-American relations: China expressed anger at a US ill which it says is “directly targeting China.” The US Congress is set to sanction Chinese officials over human rights abuses in Xinjiang, while tensions remain elevated around Hong Kong – protests against the new security law proposed by Beijing.

Chinese officials warn the US of a “new cold war.” The world’s largest economies are also clashing around coronavirus, Huawei, Taiwan, and more. However, they both pledged to respect the trade deal signed in January. The safe-haven dollar is in demand. 

Coronavirus: The number of confirmed cases has topped 5.4 million and COVID-19 has talent he lives of around 345,000, nearly 100,000 in the US. However, the pace is falling in the Western world, while South America is emerging as the current epicenter. Chinese scientists have announced progress with a treatment that neutralizes the virus.

UK: Prime Minister Boris Johnson remains under pressure after senior adviser Dominic Cummings violated the lockdown. Decisions about Brexit and the next loosening steps are awaited. Chancellor of the Exchequer Rishi Sunak is reportedly preparing to bailout strategically significant companies to avoid “disproportionate harm” to the economy. 

Negative rates: David Ramsden, a member of the Bank of England, has joined his peers in opening the door to negative rates, weighing on the pound. Andrew Bailey, Governor of the BOE, previously said the topic is “under active review.” 

Europe: Austria, the Netherlands, Denmark, and Sweden – the “Frugal Four” – object the Franco-German plan to increase the EU budget by €500 billion that includes joint debt and direct grants and opt for loans and conditionality. Negotiations continue ahead of the EU Summit in mid-June. 

The German IFO Business Climate for May is set to show a bounce from the lows of 74.2 points in April.

Gold is retreating despite geopolitical tensions, yet analysts at Citi see further gains toward $2,000 amid growing demand. WTI Oil is consolidating at around $33.

Cryptocurrencies: Bitcoin is trying to stabilize after falling below the $9,000 level over the weekend.

See: Negative Rates: Only good for downing currencies?

 

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