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Currency markets subdued after long weekend for US

GBP - British Pound

With North American markets closed yesterday due to Labour Day, the extended weekend mood was reciprocated across Europe and the UK where there was a relatively quiet start to the week.

Sterling fell yesterday pulling back from its near month highs against the dollar and 7 day peak vs the euro with signs emerging that the economic gains made from post lockdown re-openings may be starting to fade. The pound held firm on Friday after the US jobs announcement, but little has happened for the currency since, with investors likely waiting signals from the UK economy and the Bank of England's next announcement on its future policy direction, due later this month.

Tomorrow sees a hearing, where the Bank of England Governor and several MPC members testify on inflation and the economic outlook before Parliament's Treasury Committee. Any stance deemed to show that the UK's central bank is looking to raise interest rates sooner than expected and taper their asset purchase programme will likely provide Sterling a boost.

In COVID-19 news, the UK reported over 41,000 new cases yesterday and the highest 7 day average since late July which causes some concern with children having just returned back to school. Though hospitalisation numbers appear to remain low, this data is being watched carefully by the market, and any signs of an uptick could see Sterling reverse its recent trend very quickly and fall lower.

Key Movers

EUR/USD, the most widely traded currency pair in the foreign exchange markets, appeared to run out of steam during yesterday’s session with it making a move back down towards the 1.1850 mark. The short-term outlook for the pair appears to be positive with further gains possible if it clears through the recent highs of around 1.1910.

Investors remain cautious around being too optimistic about the euro, especially with the European Central Bank meeting looming on Thursday. Klaas Knot of the ECB stated that he is expecting the ECB to begin reducing the pace of its PEPP (Pandemic emergency purchase programme) at the meeting this Thursday with the aim being to end it by March. This is deemed to be positive for the euro, but the ECB has a habit of talking the euro down and hence there may be some volatility for both GBPEUR and EURUSD heading into Thursday's lunch time meeting.

The US dollar posted a modest comeback yesterday after it took a heavy beating post the release of the very poor US employment data on Friday. The Non Farm payrolls figure was significantly worse than expected, and with Jerome Powell's underwhelming speech at the Jackson Hole Symposium at the end of August, the sting has been taken out of the US dollar over the last few trading days.

Expected Ranges

GBP/EUR: 1.1605 - 1.1670 ▼

GBP/USD: 1.3780 - 1.3845 ▼

EUR/USD: 1.1840 - 1.1915 ▲

GBP/AUD: 1.8510 - 1.8765 ▼