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Sterling remains in focus after unemployment rate release

GBP - British Pound

UK unemployment rate surprised analysts by remaining at 3.9% in the three months to May versus expectations of 4.2%. Though slightly better than expected, this poor reading extenuates the situation in the UK at the moment and puts renewed pressure on the pound.

Yesterday, sterling was grabbed by the arm and dragged higher by a weaker dollar, after sentiment returned for riskier assets. This rise was also supported by the release of the latest UK CPI data (Consumer Price Index) for June, which beat forecasts and rose from 0.5% to 0.6%.

However, there was a quick shift in this sentiment overnight, after concerns reignited of economic damage in the UK from a possible Coronavirus second wave and ongoing Brexit stalemate. Investors are now questioning whether the already announced fiscal stimulus measures by Rishi Sunak will be enough to prop up the UK economy, or whether the Bank of England will need to add their monetary weight by increasing their quantitative easing program and lowering interest rates further.

The pound remains particularly sensitive versus the USD, and any further news leading up to the next Bank of England announcement could weigh on the pound heavily.

Key Movers

President Donald Trump was back in focus after he signed legislation and an executive order to hold China “accountable” for the national security law it imposed on Hong Kong. He also signed a bill approved by the Congress to penalise banks doing business with Chinese officials who implement the new security law. In response, the Chinese foreign ministry said on Wednesday it will impose retaliatory sanctions on US individuals and entities. The US-China trade war rolls on.

After Tuesday's news of progress in a vaccine development for COVID-19, coupled with an uptick in US inflation, the dollar remained firmly on the back foot. We are expecting the US Dollar to continue taking its direction from this risk sentiment, and if fears continue to grow over a possible second wave of Covid-19, we could see the safe-haven ‘Greenback’ benefit.

As we discussed yesterday, the Euro continues to benefit from the perception that the Eurozone has handled the Coronavirus situation better than most, with the single currency gaining 1.3% over it's US counterpart. The Euro rose to a four-month high against the dollar on Wednesday on hopes European Union leaders may agree on stimulus and deepening fiscal integration to shield the economy from the pandemic. However, it might not be all fun and games for the single currency, as doubts about whether all EU leaders will reach an agreement on a 750-billion-euro recovery fund, amid resistance from more frugal member states (Austria, Denmark, Sweden and The Netherlands,).

Today, we keep a close watch on ECB's Monetary Policy Statement this afternoon at 12.45pm BST, followed by Christine Lagarde’s press conference shortly after, while across the pond, US Retail Sales and Unemployment Claims are released at 1.30pm BST.

Expected Ranges

GBP/EUR: 1.1060 - 1.1030 ▼

GBP/USD: 1.2460 - 1.2560 ▼

EUR/USD: 1.1350 - 1.1420 ▼

GBP/AUD: 1.7860 - 1.8020 ▼

GBP/NZD: 1.8960 - 1.9240 ▼