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Brexit optimism boosts the pound

GBP - British Pound

All in all a positive week for the British currency as it shrugged off data that only 4 weeks ago would’ve really shocked the market. Tuesdays worst on record GDP figure was enough to create a media frenzy over the data, however its important to remember that all data at the moment is artificial. It’s very important to distinguish between what is short term, unavoidable COVID-19 poor data and what is long lasting structural damage.

It seems there’s been a shift in sentiment and traders are once again trading political events rather than fundamental data. GBP got a lift on Thursday after Irish PM, Michael Martin commented on Brexit. He mentioned that he thought there was a ‘landing zone’ for the UK and EU to come to an agreement. Coupled with Barnier’s positivity last week around a potential deal, there is a lot more optimism surrounding this round of negotiations, hence why GBP is still sitting above the 1.30 handle against the USD. The negotiations will kick off again Monday. Analysts predict a 2-3% short term dip with signs of a significant Brexit roadblock however an upside of 5-6% if things go well. This could leave GBPUSD trading just below 1.40 by the end of the year, which would be the highest since the Brexit vote in 2016.

Key Movers

Friday’s US retail sales and University of Michigan consumer sentiment index are the most important economic reports on this week’s calendar. Investors have been looking forward to two things since Monday – progress on stimulus talks and an update on the recovery. Inflation data, while interesting has very little impact on the markets in a zero-interest rate world, hence why the better-than-expected US CPI data didn’t send the USD rallying.

The US-China trade talks are scheduled to continue over the coming days for the first time since tensions boiled over in January. Most recently, Trump has labelled Chinese apps TikTok and WeChat a danger to security and threaten to ban them both in the US. It is likely Trump will focus on the ‘data farming’ element of the apps but will also touch on Huawei, China’s new national security law for Hong Kong and the origins of COVID-19. Investors will aim to not lose sight of the bigger picture and even with talks going well, there is always the chance that talks break down abruptly once more.

Expected Ranges

GBP/USD: 1.2990-1.3150 ▲

GBP/EUR: 1.1005-1.1180 ▲

GBP/CAD: 1.7225-1.7380 ▼

GBP/AUD: 1.82-1.8365 ▼