Daily Currency Update

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US continues to pick battles with China

GBP - British Pound

The pound will be itching to pick up from where it left off this week after we saw GBPUSD break 1.30 for the first time since March’s ‘Black Tuesday’. Although a large part of the surge is attributed to US dollar weakness, it is likely the pound will start to strengthen against a number of its other major peers. Britain is at the forefront of COVID-19 exploration and alongside the US, Europe and Japan have pre-ordered enough vaccine to suppress the disease in the UK. The government are also rolling out a ’90-minute-test’, which do exactly what they say on the tin. These are being rolled out to hospitals, care homes and laboratories, meaning those in need of help/self-isolation can act instantly. Once again, we face another week of light UK data, other than Thursday’s BoE release.

Eyes will once again turn to Bailey, who is now faced with limited options. Chances are he will keep a lid on the current stimulus in place and allow for the government’s eat out scheme to get the ball rolling in terms of consumer spending. Due to his limited options, Bailey will only want to act when really needed, which suggests this isn’t the best time.

Key Movers

July was certainly one to forget for the US dollar, as it went from the lockdown hero to villain. Investors flocked to the dollar at the first sign of uncertainty, however a change in risk appetite and civil issues caused this to all change. In one month, it lost 6% of its value against sterling, 5% versus the euro and more than 4% against the Swiss franc and Australian dollar. With Trump still intent on moving the election, there is worry he’ll succeed, undermining democracy and the US political system. Alongside this, Trump is looking to further disrupt Chinese business in the US, by banning a number of their most successful apps. TikTok, a Chinese video-based app, is likely to be banned in the US in the next month or two, unless it can strike a deal with Microsoft in the next 45 days. It is hard to have confidence in a country that is fighting wars on many different fronts simultaneously, with no real sign of letting up. Once again, we do have abundance of US data this week, particularly with employment data on Friday. With record breaking figures in certain states, we will likely not see a large improvement in the numbers for weeks.

The contraction in the Eurozone economy in the second quarter was slightly worse than expected. France and Italy performed better than expected but Spain disappointed. Like the US, these numbers show the extent of COVID-19 damage on the Eurozone economy. However, unlike the US, the recovery fund and relative containment of virus cases in Europe should lead to a stronger recovery.

Expected Ranges

GBP/USD: 1.2975-1.3180 ▲

GBP/EUR: 1.1035-1.1225 ▲

GBP/CAD: 1.7460-1.7610 ▲

GBP/AUD: 1.8275-1.8430 ▲