Daily Currency Update

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Pound moves higher with all eyes on the FOMC statement tonight

GBP - British Pound

The Pound continued its move higher yesterday but surprisingly being felt not just against the USD as it has done over the last 2 weeks. Sterling was in fact the best performing currency during Tuesdays trade, largely being driven by the CBI realised sales release. The index highlighted growth returning to the retail sector, a negative 27 was forecast but a positive 4 was the actual number. The improvement was primarily driven by stronger grocery sales, although conditions appear to have eased more widely following the re-opening of non-essential retailers on July 4th. Whilst the release did show signs of improvement there we also other points to note. Wholesalers reported a slower fall in sales volumes and expect a sharper pace of decline in the year to August. Motor traders reported a pick-up in sales in the year to July but Sales volumes are expected to fall in the year to August.

GBP/USD broke through the 1.29 handle and sits at 1.2940 at the time of writing, this being its highest level since March 2020. GBP/EUR charged through 1.10 eventually consolidating at 1.1040, throughout the Asian session this has dropped but still holds above 1.10.

It’s another quiet day on the economic front for the UK so moves will be down to external drivers.

Key Movers

The US dollar bounced of two year lows through trade on Tuesday as investors looked to consolidate the recent sell off and check positions ahead of the Fed’s upcoming monetary policy meeting and an anticipated announcement surrounding Fiscal stimulus plans.

Attentions are fixed on the upcoming Fed policy meeting. While we do not expect the FOMC will employ any new policy measures there could be a change to forward guidance, with average inflation targets possibly lifted to counter rising prices and make up for a decade of undershooting. An increase to the inflation target will likely weigh further on real yield returns as interest rates will remain lower for longer, dampening demand for the USD.

Fiscal stimulus plans also pose a risk to short term trends with republicans and democrats debating the size and breadth of new COVID-19 support packages. The Democrats have proposed a 3 trillion dollar platform while republicans are looking to scale back spending and push a 1 trillion dollar support program. With negotiations at loggerheads there is a real fear an agreement won’t be reach before the end of the week when the current unemployment benefits program ends. An eleventh hour deal could provide short term relief for the world’s base currency as investors continue to favour aggressive and proactive government intervention.

EUR/USD still remains well bid with the market sitting at 1.1750, we could see a break of 1.18 this evening depending on the FOMC statement.

Today brings another quiet session but things do heat up late in the afternoon. The action all coming from the US where we have pending home sales and the FOMC statement at 7pm.

Expected Ranges

GBP/USD: 1.2920 - 1.3020 ▲

GBP/EUR: 1.0980 - 1.1080 ▲

GBP/AUD: 1.8000 - 1.8100 ▲

GBP/NZD: 1.9380 - 1.9500 ▲