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Sterling continues to gain but the focus is on FED and ECB Monetary Policy Statements

GBP - British Pound

Sterling continued its gains against both USD and EUR on Monday as improving global risk appetite and hopes that lockdown measures may start to be eased, as the number of coronavirus cases appears to slow, helped boost the pound.

In Downing Street, Boris Johnson returned to work after a 3-week absence, as he recovered from a coronavirus infection himself. Immediately he held a press conference where he gave no details or when or how the lockdown measures might ease and reiterated the message that the public should stay home, save lives and protect the NHS.

Striking a cautious tone, he said that a second spike of the virus “would mean not only a new wave of death and disease but also an economic disaster”. Johnson is clearly trying to offset an early, worsened recession whilst also trying to combat the deadliest virus outbreak in over 100 years. If he finds the happy medium, expect the pound to soar.

Key Movers

This is a big week for the US dollar and euro. There are monetary policy meetings by Federal Reserve and the European Central Bank along with first quarter GDP numbers scheduled for release. The first look at Q1 GDP is always more market moving than later reports and may even have a more significant impact on currencies than the rate decisions. We know that the US and Eurozone economy contracted in the first 3 months of the year, but the question is by how much. Major countries in Europe went into lockdown mode approximately 3 weeks before major US states so we can expect Eurozone GDP growth to be weaker than the US. Yet the Federal Reserve is keener to increase stimulus than the European Central Bank but, neither central bank is expected to ease. Their guidance will be the central focus.

The question of whether euro or the US dollar will be hit harder this week will depend on whether these central banks will take more action, what those steps could be and how deep of a contraction is expected for Q2, H2 or 2020 growth. ECB President Lagarde recently said that the Eurozone economy could contract as much as -15%, but Powell has been tight lipped about their forecasts. Earlier this month, Powell tried to sound optimistic, saying that the recovery post COVID-19 should be robust but it may be difficult to adhere to that outlook with social distancing rules likely to remain in place for the rest of the summer. Increased bond purchases is an option for both central banks, but having eased aggressively between meetings, they may not be eager to up stimulus for a few more weeks.

On the other side of the world, both Australia and New Zealand have begun to ease lockdown restrictions after infections rates fell below double figures. Expect the antipodean currencies to therefore improve heavily over the next few days.

Expected Ranges

GBP/USD: 1.2450 - 1.2550 ▲

GBP/EUR: 1.1440 - 1.1540 ▲

GBP/AUD: 1.9175 - 1.9325 ▲

GBP/NZD: 2.0575 - 2.0725 ▲

GBP/CAD: 1.7365 - 1.75 ▲