Home Daily Commentaries USD weakens as risk returns

USD weakens as risk returns

Daily Currency Update

Macroeconomic data was again thin on the ground Tuesday for both the UK and Europe, with the only key release coming from the US. The Job Openings and Labor Turnover Survey (JOLTS) showed the number of US job openings decrease to 10.7 million on the last business day of June. This was below forecast with the largest decrease seen in retail trade, followed by wholesale trade and state and local government education. It was news elsewhere that held the headlines for currency movement yesterday with House of Representatives Nancy Pelosi's visit to Taiwan causing market participants to buy safe-haven currencies such as the US dollar, an action that normally occurs in the case of market uncertainty. As China sees Taiwan as part of its territory, the visit was deemed provocative and saw the promise of retaliation which will now likely see several days of military drills around Taiwan. Market concerns surround the already fragile relationship between the US and China, but also the likely effect the military action will have on the supply of semiconductor chips, causing further upward pressure on inflation. In the build-up to Pelosi’s visit, the US dollar was bought as a safe-haven currency seeing the US dollar gain against a basket of currencies, including the pound and euro. The US dollar was sold back off by the time Pelosi landed however taking GBP/USD from US$1.2140 back up to US$1.2200 this morning. The EUR/USD has also recovered some of its losses, climbing back up to US$1.0190.

Key Movers

This week's key release comes from the UK as the Bank of England rate decision on Thursday at 12pm. At the same time of the release, we will also see how the monetary policy committee voted on the decision and following the release we will likely be given guidance on future decisions. A 50 basis point (bp) hike has been forecasted with market participants factoring in a 90% chance of this happening. Despite this, if the Bank of England was to raise interest rates by 50 bp this will be the first time the bank has exceeded a 25 bp hike since 1997 when independence was gained from the government. Also, last month we saw a similar prediction and the Bank of England only decided to go with a 25 bp hike. This makes tomorrow's announcement a big risk event for the pound with a question mark hanging over what hike will be seen. A week ago GBP/USD had just peered over US$1.2000, touching US$1.2280 at the highs and GBP/EUR had pushed over €1.1900, making a break for €1.2000 on a few occasions. Sterling will likely be volatile ahead of the release in anticipation of the result and if decisions fall below expectation, it could fall back towards the recent lows versus the EUR and USD.

Expected Ranges

  • GBP/USD: 1.2140 - 1.2280 ▲
  • GBP/EUR: 1.1910 - 1.1980 ▲
  • GBP/AUD: 1.7460 - 1.7650 ▲
  • EUR/USD: 1.0150 - 1.0230 ▲