The US dollar fell sharply on Monday as risk-on trade and falling US Treasury yields weighed heavily on the safe-haven currency.
Sterling is building on these gains this morning, with GBP/EUR jumping to €1.0913 and GBP/USD surging to $1.1826. GBP/CAD has rallied to C$1.6808, while GBP/AUD and GBP/NZD have retreated to AU$1.9834 and NZ$2.0180 respectively.
As the coronavirus crisis rolls on expect to see more volatility in the currency markets through the remainder of the week.
What’s been happening?
Having plummeted to its lowest levels since 1985 on Wednesday, the pound mounted a comeback yesterday after the Bank of England (BoE) announced its second emergency rate cut this month.
The BoE slashed interest rates to a new record low of 0.1%, whilst also announcing it would be expanding its quantitative easing programme by another £200bn in a continued effort to shield the UK economy from the fallout from the coronavirus and to calm markets.
On top of this GBP investors also cheered reports that Chancellor Rishi Sunak will announce new stimulus measures aimed at protecting jobs, which helped the GBP/USD exchange rate climb back above $1.18 overnight.
The rally in GBP/USD was also aided by more modest demand for the US dollar on Thursday.
This slowing of the ‘greenback’ came as fears over a USD shortage eased after the Federal Reserve announced it would provide access to an additional $450bn in dollar swap lines to a number of central banks.
The US dollar was also tempered by the US initial jobless claims report, which revealed a sharp increase in unemployment benefit claims last week due to coronavirus layoffs.
Meanwhile, it was the euro’s turn to dive yesterday, with the single currency sinking fast against the US dollar as EUR investors grow increasingly concern about how much damage the coronavirus lockdown is doing to the Eurozone economy.
What’s coming up?Unsurprisingly, as the coronavirus continues to dominate headlines the currency market is likely to remain volatile through the upcoming session.
As such the focus is likely to remain on the US dollar as a renewed sense of optimism appears to be dampening demand for the risk-sensitive currency.
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)