The pound made fleeting gains on Thursday, driven by hopes for a solid economic rebound in the UK this year.
Sterling appears to be consolidating Friday’s gains this morning, with GBP/EUR buoyed at €1.1043 and GBP/USD flat at $1.3046. GBP/CAD is stable at C$1.7121, while GBP/AUD and GBP/NZD hold steady at AU$1.8049 and NZ$1.9586, respectively.
Coming up this week, expect to see Brexit uncertainty infuse some considerable volatility into GBP exchange rates.
What’s been happening?The pound initially tumbled on Friday as the UK’s latest GDP figures printed below expectations.
These showed that while the UK returned to growth in the three months to August, month-on-month growth in August itself was below expectations at only 2%, fuelling concerns that the economic recovery is already slowing.
However Sterling staged a comeback towards the end of the session, aided by some cautious Brexit optimism.
The US dollar suffered a notable sell-off at the end of last week’s session as improving market risk appetite undermined the safe-haven ‘Greenback’.
This risk-on mood was driven by renewed hopes for a comprehensive US stimulus package as talks between Democrats and Republicans resumed after being halted earlier in the week by a tweet from President Trump.
This drop in the US dollar helped to propel the euro higher last week due to the negative correlation in the pairing, which helped EUR investors to shrug off their coronavirus concerns.
What’s coming up?Turning to this week’s session, we can safely assume that Brexit will act as the main catalyst of movement in the pound.
As the UK and EU race to find a deal before Boris Johnson's 15 October deadline, we can expect GBP exchange rates to experience considerable volatility, but with plenty of upside potential in Sterling should a deal be found.
However, in the meantime the UK faces the prospect of more coronavirus restrictions which could exert some pressure on the pound.
Across the channel, the focus at the start of this week is likely to be on the latest ZEW surveys, with an expected deterioration in German and Eurozone economic sentiment this month likely taking a toll on the euro.
Finally, USD investors will be bracing for further swings in the US dollar this week as growing US political uncertainty looks to infuse the ‘Greenback’ with even more volatility.
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)