Sterling exchange rates climbed yesterday despite a number of issues weighing on the Pound’s value, with cable (GBPUSD) rates hitting the headlines after hitting a 3-week high.
The GBPUSD exchange rate traded as high as 1.2488 at its highest level yesterday, after the pound was boosted by the easing of the lockdown measures within England, and also as the US dollar is coming under selling pressure owing to domestic issues surrounding the George Floyd protests.
GBPEUR also saw it’s biggest 1-day climb in two months after gaining 0.85% through yesterday’s trading session.
Perhaps another reason for the increase in Sterling’s value yesterday can be attributed to the May Manufacturing Purchasing Manager's Index (PMI) figures which were released yesterday morning. They demonstrated that the pace of the slowdown in the sector of the UK economy has slowed, after the record falls in April and this was taken as a positive by the markets. Perhaps this Wednesday’s Services PMI will show a similar pattern and it is worth being aware of this release. The services sector covers a greater amount of economic output for the UK, so it could be a more price sensitive release.
According to reports from Reuters yesterday though, short positions taken out against the pound (bets that the currency will fall in future) increased for the 12th consecutive week and have hit the highest levels since just before the general election in December last year. There are several question marks over the UK economy at the moment despite the relaxing of the lockdown rules. There is still talk of the Bank of England potentially cutting interest rates to negative for the first time in history, the UK has one of the highest number of recording fatalities from the COVID-19 virus, and the Brexit talks are yet to show any progress despite June being a key month for them.
Brexit negotiations are taking place this week and as it stands, they must be concluded this year if the UK doesn’t request an extension to Brexit sometime this month.
Tensions between the US and China remain high, with US President continuing to blame China for the outbreak of COVID-19 getting out of hand earlier this year. This will make trade negotiations between the two strained and on top of this matter, the US is now faced with domestic issues of its own.
Protests in some cities within the US, after the death of George Floyd have become destructive and have continued for 7 days now. Many local authorities have struggled to restore order with the US army being brought against protesters in Minnesota for example. There will be a considerable clean up bill to follow and some of the commentary from US President Donald Trump has arguably fuelled the fire. Late last night he gave a speech and said that if cities and states failed to control the protests he would send in the army to ‘quickly solve the problem for them’.
The US dollar has remained strong for much of the year so far as investors search for safe-havens at a time of economic uncertainty for the much of the globe, but the aforementioned issues faced by the US could result in a more cautious approach regarding the US dollar.
This Friday will see the release of US Jobs data, and after a miserable figure in April which left the unemployment rate at 14.7%, Friday’s figures for May are expected to be much worse.
The euro had this year's best monthly performance according to Bloomberg last month, as sentiments improved surrounding the single currency after the EU managed to agree on a stimulus package to help aid the trading bloc through the aftermath of the COVID-19 virus, and the lockdown measures. Focus could now turn to Brexit negotiations although economic data is still worth following closely. Unemployment data could be followed closely, and with the next release being this Wednesday I think the markets will follow this release closely.
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