The currency markets are picking up where we left off last week as the US dollar continues to lose value against the Euro and pound, as investors remain increasingly fearful over the US economic outlook. With the US dollar the world’s most heavily traded currency, big movements on the US dollar can send ripples through FX markets globally.
There are mounting concerns over the global response to the pandemic once again as the weekend saw a flurry of less than positive stories with the introduction of a two-week quarantine for Brits returning from Spain, beginning from midnight on Saturday.
It is estimated this will affect about 600,000 Brits and the news has had a major effect on travel operators with much of the more recent optimism over a return to normality being dented. Sterling did receive a slight boost towards the end of last week with June Retail Sales coming in 13.9% higher than in May, and the flash PMI (Purchasing Managers Index) data for last week came in at 57.1, returning to growth, on a scale of 1 to 100 where anything above 50 represents growth, up from the 47.7 in June.
The pound does appear to face an uphill challenge against many currencies this morning, remaining at similar or slightly lower levels than last week against many currencies, except the US dollar where interbank rates have reached 1.2858 at their peak this morning, over a four-month high.
A key feature last week for sterling exchange rates was the behaviour of the US dollar and Euro, in particular EURUSD. Big movements on EURUSD helped shape the performance against sterling, which helps explain why the pound finished last week higher against the US dollar, but lower against the Euro.
The Euro has been much stronger rising to fresh 1 ½ years interbank highs of 1.1752 today, the highest and strongest for the Euro since September 2018. Fueled by rising confidence in Europe as it appears particularly compared to the US and perhaps India and Africa, Europe has handled the Coronavirus pandemic well. The news that Spain and some other European countries are seeing rises in infections has not really influenced this sentiment so far today, EURUSD has continued to rise against the weaker US dollar.
The €750bn program to combat the negative health and economic effects of COVID-19, represented some unity amongst Eurozone nations and helped to spur on confidence. This pushed GBPEUR levels down to 1.0946 last week and we are currently at 1.0952.
There are no key UK data releases this week, but perhaps much like last week there will be plenty of other events happening globally and enough news on Coronavirus and perhaps Brexit to keep us interested.
On the economic data front there are key releases with the latest US interest rate decision Wednesday evening, and also US and Eurozone GDP (Gross Domestic Product) released this week. With the currency markets currently reacting to a weaker US dollar, any commentary by the US Federal Reserve bank could further influence sentiment and affect not just the US dollar but also EURUSD and many others as mentioned above.
US GDP is released Thursday and Eurozone is Friday, both of which may also be of significance given the attention to the global economic recovery at present, in the face of the continued effects and concerns of COVID-19.
And on Brexit, last week’s talks finished with Barnier warning of ‘no progress’ being reached, further assisting some of the weakness for the pound. Further trade deal talks are imminent, with a focal point of the October EU Summit where it is hoped a deal can be agreed to be ratified in time of the end of year deadline to the current transitional phase.
We have talked many times about ‘sentiment’ in the currency market at present and how the rising and falling of confidence in the currency market toward the handling of the pandemic can influence market movements.
This might be another big factor this week, as the price of Gold has reached an all-time high at $1944.71, in response to the rising uncertainty globally. Where previously it was the US dollar that had risen sharply on such uncertainty, with an election looming and rising uncertainty over their both economic and health response to COVID-19, gold has become an attractive safe haven once again.
The currency markets are in period of change as evidenced by the fresh movements on EURUSD and also the price of gold, for more information on what may influence levels this week please do get in touch with us to discuss further.
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