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Sterling recovers as global lockdown eases

GBP - British Pound

A loosening in Coronavirus restrictions has helped sway risk appetite in the past 24 hours with US states California and New York joining the list of locations set to reopen their economies. Spain, Italy, Nigeria, India and Malaysia also tentatively look to ease lockdown as discussions between Australia and New Zealand head towards a reopening of the boarders between them. This global optimism has helped the markets recover from what was a very risk averse start to the week, putting US-China concerns to the back of the mind, for now. The pound halted its early losses against the Euro and US dollar yesterday, with lows seen at around 12pm – GBP/EUR 1.1350 and GBP/USD 1.2406. Sterling’s recovery against the US dollar has been small and range bound reaching 1.2470 in the early hours, but a little stronger against the Euro as it aims to break 1.1450 as I type.

Investors don’t just have the news headlines to follow today with noteworthy economic data being released globally. UK final services PMI is due this morning and is set to give an update on business conditions within the sector, normally gauging expansion versus contraction on the result being above or below 50. However, as the latest figure covers a full month of lockdown a sharp fall is expected with forecast figure set at 12.3. Sterling may take guidance from this release if the figure is much better or worse than forecast.

Key Movers

The safe haven flight to the US dollar has eased among investors as the global recovery from the Coronavirus continues. The positive sentiment renewed risk appetite, which saw the US dollar sold against a basket of currencies such as Sterling, Australian and New Zealand dollars. The concerns between the US and China are still very much alive with continual threats of tariffs, reneging on US debt obligations and confrontations, but a recovery from Covid-19 cannot be ignored in kick-starting the global economy. Data sees ISM non-manufacturing PMI give an update on business conditions outside of manufacturing. The US can normally boast an expansion figure above 50.0, but virus ravaged data sees forecast set at 37.5.

Overnight saw the Australian cash rate kept at 0.25%. This bolstered the Aussie dollar with risk appetite also returning among investors and talks of borders opening between them and New Zealand, but it was clearly outlined that an increase to the cash rate target won’t be seen until progress is seen towards full employment and inflation will be sustainably within 2-3 per cent. The Australian dollar has pushed Sterling back down to 1.9300 and reached 0.6460 against the US dollar. The New Zealand dollar has also benefited from these moves as it waits for its employment figures overnight.

Expected Ranges

GBP/USD: 1.2420 - 1.2510 ▲

GBP/EUR: 1.1420 - 1.1490 ▲

GBP/AUD: 1.9290 - 1.9410 ▼

GBP/NZD: 2.0500 - 2.0620 ▼

GBP/CAD: 1.7460 - 1.7630 ▼