Daily Currency Update

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Brexit talks creep back into the limelight

GBP - British Pound

Today sees the UK’s next stage of returning to some form of normality. Some schools will return, car show rooms and open air markets will be allowed to re-open and up to 6 people will be allowed to meet in private gardens or open spaces. Its still a far throw form normal life but a welcome improvement to current conditions. Top scientists have expressed concerns that the measures being lifted are too aggressive with infection rates still high.

On Friday, Rishi Sunak announced changes to the Furlough scheme currently in place. The scheme itself will come to a close at the end of October with employers being asked to pay NI and pension contributions in August. He then went on to add employers will have to pay 10% of pay from September, rising to 20% in October. Some firms expressed concern at these changes, especially those in the hospitality industry. This sector is not expected to re-open until July and with employers having to foot the NI bill in August some believe this isn’t enough time to get money coming through the door again, essentially crippling some companies.

The latest round of Brexit negotiations resume this week starting on Tuesday and concluding on Friday where we are expecting a press conference to close off the meeting. Brexit talks cannot go on forever and will need to conclude before the autumn, Britain has warned the EU. The European Union and Britain will have to engage in accelerated Brexit talks over the summer if they are to reach a deal.

The Pound opens higher against the USD and EUR this morning with cable breaking 1.24. Against a broadly strong euro, sterling lost 0.2% to 90.07 pence on Friday, its weakest since March 27. This month sterling has lost almost 4% against the euro, which has gained support from the European Commission stimulus plan announced last week. On the docket this week will be the latest round of PMI’s and expect Brexit news to dominate.

Key Movers

Risk is well and truly back on the cards today with the AUD/USD catapulting to its highest level last seen in early February. There was a combination of factors that contributed to this bullish risk move. Firstly, there was a sigh of relief after Donald Trump began the process of ending Hong Kong's special status but did not withdraw from the US-China phase-one trade deal. Secondly, green shoots of recovery were witnessed in China following the Manufacturing PMI release. A number above 50.00 signals expansion and the industry posted 50.6, total new orders continued to expand, with the index rising to 50.9 in May, up 0.7 percentage points from the previous month. But the improvement was due almost entirely to domestic demand, with new export orders continuing to decline sharply.

Riots in the states have added further pressure to the greenback amid the virus pandemic during the weekend. George Floyd's death at the hands of Minneapolis police was spread across and this has sparked riots across the globe, one being witnessed in Trafalgar Square. Curfews have been imposed in nearly 40 cities in the states, but people have largely ignored them, leading to tense stand-offs. Riot police clashed with protesters in New York, Chicago, Philadelphia and Los Angeles, firing tear gas and pepper bullets to try to disperse the crowds. It has emerged that in Friday night's unrest, President Donald Trump was briefly taken by the secret service into an underground bunker at the White House, for his safety. This didn’t stop him from taking to twitter though, calling for the National guard to impose order in some of the cities worst effected by the looting and riots.

The docket this week see’s central bank decisions from the RBA, BOC and ECB where all are expected to hold on rates. A raft of employment data from the states this week and given the high level of unemployment already witnessed investors will be looking for signs of improvements. Brexit talks and PMI’s will be the focus for the UK. Most of the Eurozone observes a public holiday today but we still have PMI’s released starting this morning.

Expected Ranges

GBP/USD: 1.2380 - 1.2480 ▲

GBP/EUR: 1.1120 - 1.1150 ▲

GBP/AUD: 1.8270 - 1.8470 ▼

GBP/NZD: 1.9780 - 1.9890 ▼