Sterling has enjoyed periods of steady gains this month against EUR and USD, with a further spike in value this morning following better than expected retail sales figures for July.
The Retail Sales figures released this morning are in fact higher than pre-coronavirus levels and are 1.4% higher compared to the same period in 2019. July was the first full month of non-essential shops being opened and show an extremely fast recovery that was far higher than had been expected. As such we have seen GBPEUR touch a 38-day high this morning.
Today could provide further volatility on GBP exchange rates with the conclusion of the latest round of Brexit negotiations between the EU and UK which have been ongoing since Wednesday this week. Going into the meeting the two sides are still at loggerheads over a Brexit trade deal, but earlier this week Downing Street announced that they are confident a deal can be agreed next month, and this has helped the pound gain in value.
Despite the optimism from the UK there is still plenty of work to do in order to agree a deal particularly on the topics of fair competition and UK fisheries. The UK have previously said they have ruled out an extension to the December deadline for a deal and the EU believe a deal will need to be done by October at the latest. This topic is likely to continue to drive GBP exchange rates over the coming weeks and months. It is expected that any updates from this latest round of negotiations will be released later today and this could have a significant impact on the value of sterling.
The euro lost value against GBP and USD yesterday as investors sold off their euro positions to purchase USD following the release of Central bank minutes released from the ECB and the Fed. At their latest meeting the ECB kept their current monetary policy measures on hold but stated that it was likely they would likely use further stimulus measures in the future to help boost the bloc’s recovery from the pandemic.
The minutes showed however that not all members are aligned on this view with some believing that the bank should hold back and not use all of the €1.35 trillion PEPP (Pandemic Emergency Purchase Programme) which was agreed earlier this year to help navigate out of the crisis. As such this uncertainty has resulted in a EUR sell off and investors are now seeking the safer haven of USD. Furthermore, the uncertainty over the next direction for Brexit could be hanging over the euro as negotiations continue this week between the EU and UK.
This morning sees the release of a raft of data across Europe including Manufacturing and Services PMI for August at 09.00. These numbers usually give a good indication towards the strength of an economy and can therefore create exchange rate volatility. Initial expectations are for a jump in the numbers which could provide a boost for the single currency. If you have an account manager with us it could be worth speaking with us this morning in order to keep up to speed with how the markets are impacted this morning.
USD has been on a downward trend particularly against GBP in recent weeks, but the Greenback recovered some of these losses yesterday on a change in risk sentiment following the release of the latest Federal Reserve Monetary policy minutes. The dollar had seen a run of losses due to the struggles the US has faced during the Coronavirus pandemic along with fears of how well the economy is performing and had hit the lowest levels against GBP since January earlier this week.
A less dovish tone than expected from the Federal reserve minutes however has helped the dollar bounce back and we saw a correction in USD rates throughout yesterday morning’s trading as investors cashed in on profits made as a result of the dollar’s recent fall in value.
Deutsche Bank analysts told their clients this week about how they had sold their EURUSD positions and it appears as though investors are selling EUR and other riskier currencies to purchase USD. Deutsche Bank stated, “With EURUSD having (nearly just) reached our 1.20 target earlier this week we now favour taking profit and see a more balanced outlook as we approach September”.
However, we did see the dollar show further signs of weakness in the afternoon’s trading following the release of US jobless claims, which went against initial predictions and rose more than had been expected. Jobless claims last week rose to more than 1.1 million, with the leisure, travel and retail industries being hit the hardest amid the Coronavirus pandemic.
Clients with a USD requirement should keep an eye on Manufacturing and Services PMI for August due to be released this afternoon as they will likely give a good insight in to how the economy is performing overall. There are still fears over how stop and start the US recovery is at present and if this is mirrored in these numbers, we could see further volatility in USD exchange rates.
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