June 2020 - Monthly Economic Outlook

Gain an overview of the latest developments on the currency market and anticipate fluctuation risks.

EUR/USD

High: 1.0997 / Low: 1.0821 / Change: +1.2%

Despite rising in May, the overall trend for the euro remains a downward one. The pair continues to move within its range of the last two months, and we still expect a further drop, breaching the support level of 1.07 in the medium term. In the coming weeks and months, two main markers should benefit the dollar at the euro’s expense. Firstly, the return of political risk as a result of increasing US-China tensions, and secondly, the difference in economic activity on either side of the Atlantic. The policy mix (the combination of monetary policy and fiscal policy - ed.) rapidly embarked upon by the Trump administration and the Federal Reserve is likely to allow a quicker recovery in the United States than in the eurozone. In the short term, the ECB is expected to continue to support economic activity. In its monetary policy meeting on 4 June, we expect it to strengthen the measures deployed to deal with the crisis, increasing the Pandemic Emergency Purchase Programme (PEPP) by 500 billion euros and extending it beyond the deadline initially established for the end of 2020. 

EUR/GBP

High: 0.8536 / Low: 0.8333 / Change: +2.09%

The euro was very successful against the pound sterling in May (+2.09%). The good performance for the pair above all reflects the growing concern among market operators for the pound sterling over the handling of the health crisis by Johnson’s government and the approaching deadline of the end of June, established to request an extension to the Brexit transition period. Given the acrimonious situation between London and Brussels regarding Brexit, there is every reason to believe that the EUR/GBP pair will be particularly volatile in June, changing with every announcement and every comment on the subject of negotiations for the United Kingdom's exit from the EU. Vigilance will therefore be required, taking care to protect against the risk of significant fluctuations in the pair.

EUR/JPY

High: 118.48 / Low: 115.06 / Change: +1.45%

The euro put in one of its best monthly performances against the Japanese yen (JPY) in May, up 1.45%. This is essentially a technical rebound, unrelated to economic fundamentals and monetary policy. A fall in the EUR/JPY pair remains relevant in our view due to the marked increase in tensions between Washington and Beijing in the run-up to the American presidential elections in the autumn. The yen remains our preferred barometer to judge the state of commercial and diplomatic relations between the United States and China. New tensions could see the pair reach somewhere in the region of 116 in the medium term.

EUR/CHF

High: 1.0660 / Low: 1.0519 / Change: +0.60%

Slight increase in the EUR/CHF pair for May. The Swiss franc, however, continues to be controlled by the Swiss National Bank, which is increasing interventions in the foreign exchange market. By our calculations, based on the changing level of overnight deposits with the central bank, over the first three weeks of May the Swiss authorities spent no less than 16 billion Swiss francs (CHF) to keep the floor rate for the pair at 1.05. For the time being, nothing suggests that this level can be crossed in the short term, as was the case in 2015, with the floor rate at 1.20, which had to be hastily abandoned. Several members of the Swiss National Bank have, in recent weeks, reiterated their desire to continue with forex interventions.

EUR/CAD

High: 1.5361 / Low: 1.5152 / Change: -0.52%

The Canadian dollar was helped in May by the significant rebound in the price of a barrel of oil, which explains the fall, albeit a modest one, for the EUR/CAD pair. We note, however, that concerns relating to changes in oil prices persist, due to demand, which remains insufficient in a post-Covid context. We therefore cannot rule out the Canadian dollar falling further in the coming weeks. With regard to monetary policy, the Bank of Canada is expected to keep its interest rates at an all-time low of 0.25% following its meeting on 3 June.