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EUR/USD retreats to $1.18 as market sentiment sours

currency-newsEUR/USD retreats to $1.18 as market sentiment sours
The US dollar trended higher on Friday, supported by a prevailing risk-off mood, which offset some weaker-than-expected US economic data.

Meanwhile the pound is trading in a narrow range so far this morning, with GBP/EUR flat at €1.1718 and GBP/USD buoyed at $1.3922. GBP/CAD is rangebound at C$1.7359, while GBP/AUD and GBP/NZD hold steady at AU$1.8937 and NZ$1.9963 respectively.

Coming up, all eyes will be on the Bank of England (BoE) this week as it concludes its latest policy meeting.

What’s been happening?

The US dollar ended last week’s session on a positive note, as a souring market mood helped to revived demand for the safe-haven currency.

However, this upside in USD exchange rates was capped somewhat by the latest US core PCE price index, after the Federal Reserve’s preferred measure of inflation printed below expectations at 3.5% against forecasts of a 3.7% rise.

This upside in the US dollar came at the expense of the euro, due to the strong negative correlation between the pairing, which capped the upside potential of the single currency after Eurozone GDP beat forecasts in the second quarter, while inflation in the bloc also accelerated at a faster-than-expected pace in July.

The pound, meanwhile, was broadly rangebound on Friday, as while the latest data reported that coronavirus cases in the UK are on the rise, the R number (which indicates the number of people one Covid-positive person will infect) has fallen.

What’s coming up?

Turning to this week’s session the biggest event of the week is likely to be the Bank of England’s latest rate decision.

No policy changes are expected from the BoE this month, but GBP investors will likely pay close attention to the bank’s forward guidance, with the pound potentially giving up a portion of its recent gains if policymakers avoid discussing the tapering of its stimulus programme.

In the meantime, the spotlight at the start of this week will be on the latest ISM manufacturing PMI. Will another slowing of activity in the US factory sector see the US dollar get off to a slow start this week?

For EUR investors the focus will be on Germany’s latest retail sales figures, with the euro likely to be supported this morning after Germany reporting a larger-than-expected expansion of sales growth in June.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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