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US-China wars help push the Pound higher

GBP - British Pound

GBP/USD opened Monday morning on the rise again, peaking to 1.2846 during the Asian session. Friday saw the release of the UK PMIs with all beating expectation and indicating expansion once again following the collapse during the virus pandemic. The pair has also been spurred on with the continuous rise in US infections and US-China tensions.

The pound's rally will be watched with caution though as Brexit talks stalled last week over the chances of securing a free trade agreement, with Brussels deeming it "unlikely", but London holding out hope one could be reached in September. This mixed with other euro positive news has prevented GBP/EUR moving in a similar direction to GBP/USD, the pair has fallen from last week’s high of 1.1102 down to 1.0950 where we currently trade at the time of writing.

It’s a quiet week on the data front for the UK this week, so expect any sterling moves to come from other events, with Brexit being a big driver in price movement.

Key Movers

EUR/USD continued its drive higher during the Asian session, breaking above 1.17 for the first time since September 2018. The surge has largely been driven by dollar selling but also the recently concluded deal on the European Recovery Fund helping to put political fears within the region to rest (for now). Data for the euro doesn’t really heat up until Thursday where we get the Unemployment rate and German prelim GDP. For now we expect the EUR/USD pair to continue to climb where the 1.18 handle looks to be a possible target this week.

The US woes continued last week with the dollar being heavily sold off. The tit for tat continues with China with both closing each other’s consulate. Coronavirus cases in the US passed 4 million over the weekend so the pressure was being felt with the current aid bill to help the economy due to end on July 31st. The pressure appears to be off now though, as the White House Chief of Staff announced late Sunday an agreement in principle has been met with the new fiscal package expected to contain extended unemployment benefits and a 70% wage replacement. This week, Chairman Powell will hold a press conference after the Fed’s two-day meeting. So far, the market expects rates to be near zero through 2022. Of course, any deviation from this extreme expectation would be a surprise on the ‘hawkish side’ and will bring support to the USD.

Expected Ranges

GBP/USD: 1.2800 - 1.2860 ▲

GBP/EUR: 1.0910 - 1.1010 ▼

GBP/AUD: 1.7960 - 1.8060 ▼

GBP/NZD: 1.9150 - 1.9280 ▼