Daily Currency Update

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Sterling higher, but not on sentiment

GBP - British Pound

UK GDP data did little to help the falling pound yesterday morning with the final q/q figure coming in worse than expected. The early news saw the pound drop to 1.2260 versus the US dollar and 1.0935 against the euro. Prime Minister Boris Johnson announced a plan to fast-track GBP 5 billion of infrastructure investment and slash property planning rules to revive the UK economy. The news was expected and had little impact on the pound as many believe it is too low a figure when taking into consideration the increase in recent government intervention/stimulus to aid the UK recovery from the pandemic. So, why did the pound go on to recover yesterday with worries of a no deal Brexit, weaker than expected data releases, and concerns that further lockdown easing may cause a similar flare-up recently seen in Leicester? It seems to point to end-of-quarter re-balancing rather than any positive sentiment. Sterling gains would have also been supported by MPC member Andy Haldane’s comments regarding a V shaped recovery. Sterling, from the early lows, saw a session high of 1.2400 against the US dollar and 1.1040 against the euro overnight.

This morning we have already seen a low impact data released from the UK. Nationwide building society gave an update on the selling prices of homes. No surprises that the figure was worse than expected seeing a -1.4% figure versus -0.6% expected. Shortly, we are expecting to see whether UK manufacturing has expanded with a forecast of 50.2. At 12pm we await to hear from MPC member Haskel who is addressing the Brighton & Hove chamber of commerce via a webinar on his role on the MPC and what the UK recovery will look like. Haskel’s comments will be scrutinised for any indication on the UK recovery.

Key Movers

The US dollar came under pressure yesterday as coronavirus cases rose by 47,000 showing the US is losing its battle with the pandemic. California, Texas and Arizona have emerged as new US epicentres of the pandemic which will likely force the US government to reimpose lockdown rules on these states. The increase in numbers has prompted renewed criticism of US President Donald Trump with Democrat Joe Biden stating the historic mismanagement of the pandemic has cost lives and inflicted more damage than necessary to the US economy. This, along with continual US-China tensions, and the US dollar being sold at end of quarter flow, overshadowed local data that was starting to paint a prettier picture on recovery. EUR/USD touched 1.1250 yesterday and GBP/USD topped at 1.2400.

A pandemic spike was also seen in Melbourne, Australia’s second largest city, which has seen 10 areas re-enter into lockdown for 4 weeks. The news locally and globally has knocked the path to recovery and this has subsequently hit risk appetite. As this is the case, the Australian dollar lost ground against the pound. GBP/AUD opens just over 1.7900.

Expected Ranges

GBP/USD: 1.2310 - 1.2440 ▲

GBP/EUR: 1.0950 - 1.1070 ▲

GBP/AUD: 1.7870 - 1.7990 ▲

GBP/NZD: 1.9120 - 1.9245 ▲

GBP/CAD: 1.6770 - 1.6880 ▲