Sterling was the strongest performing major currency on Friday buy some considerable distance, finishing off a very strong month for the Pound when we compare it against many other currencies.
The strong finish for the Pound on the final day of July resulted in cable (GBPUSD) having its strongest performing month in 11-years, with the GBPUSD exchange rate gaining by around 6% through July.
Although there have been some green shoots for the UK economy, much of the impressive movement for GBPUSD is actually being attributed to a weakening US Dollar. Fears have been mounting regarding the US from both a political and economic standpoint throughout the remainder of the year. The US government has so far failed to halt the spread of the Covid-19 virus and last month record numbers of new Covid-19 cases were hit in a number of states leaving the US death toll as a result of the virus outpacing the rest of the world. The fears regarding the knock-on effect this is having on the US economy has resulted in a weakening US Dollar and a strengthening in the value of Gold.
The increasing value of Gold is significant as the commodity is considered a safe-haven and it’s usually where investors hold funds during times of economic uncertainty or fears of a global slowdown. The US Dollar has until recently been considered a safe haven currency so as the year progresses and the US Presidential Election takes place in November, we could see GBP/USD impacted so it’s worth following these topics if you have a currency requirement involving the pair.
Sterling has benefited from the greenback’s weakness, and it has also been strengthening against other major currency pairs owing to some green shoots within the UK economy as previously mentioned. Now that the UK property market has reopened Nationwide’s July property analysis shows that UK property prices have grown by the highest amount in 11-years as they surged by 1.7% in July. Mortgage approvals in the UK have also exceeded expectations recently which may have improved sentiment surrounding the UK.
The news out of the UK is far from all positive at the moment though, as the reality of Brexit negotiations being incomplete is still hindering the Pounds gains and the positive outlook. The UK and EU last week announced further trade talks that will lead all the way up to October the 2nd. This is less than a fortnight away from the EU summit whereby both UK and EU negotiators hope to have a deal in place, and to have ironed out ongoing issues such as EU fishing rights within UK waters, and the UK’s demanding immigration proposals.
The reason the deals need to be agreed by the EU Summit which talks place on the 15/16th of October, is so the new trade rules can be written into law by the time the UK departs its current transitional period with the EU at the end of the year. October could be crucial for the UK’s immediate economic future so I think there could be market movement for GBPEUR around this time.
Over the weekend Australia’s 2nd most populous state, Victoria announced a state of emergency and implemented a late-night curfew in Melbourne as Covid-19 cases have become resurgent in the region. Australia had originally been used as a good example of how to contain the virus but the 2nd wave now shows the battle the globe faces. There are now hundreds of cases being reported daily and should the lockdown continue for some significant time we’re likely to see a slowdown in the economy down under and the potential for a weaker Australian Dollar.
Economic data releases due out today are relatively light, although the manufacturing sector will be in focus today as releases out of the UK, the EU and the US are all due out today. The UK and EU’s figures for July will be released this morning, and the US release is due at 1.45pm UK time.
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