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GBP/USD retreats to $1.35 in gloomy trade

currency-newsGBP/USD retreats to $1.35 in gloomy trade
The US dollar roared higher on Friday in response to a souring market mood brought about by concerns over potential US tax hikes.
 
Meanwhile, the pound appears subdued at the start of this week’s session, with GBP/EUR muted at €1.1230 and GBP/USD dipping to $1.3556. GBP/CAD is stable at C$1.7337, while GBP/AUD and GBP/NZD hold steady at AU$1.7648 and NZ$1.9065, respectively.
 
Looking ahead, it seems safe to assume that Joe Biden’s first day as US president will be the main focus of this week’s session.
 

What’s been happening?

The US dollar rallied at the end of last week’s session, with the safe-haven currency being carried higher by a prevailing risk-off tone.
 
The souring mood came in response to concerns over President-elect Joe Biden’s stimulus announcement, as analysts indicated his suggestion that ‘everyone must pay their fair share’ was a signal that tax hikes are likely.
 
This surge in the US dollar left the euro on the defensive on Friday courtesy of the negative correlation between the pairing, with the single currency’s weakness made worse by Italian political uncertainty as the country’s ruling coalition was rocked by the exit of Matteo Renzi’s Italia Viva party from government.
 
The pound, meanwhile, also retreated on Friday following the publication of the UK’s latest GDP monthly figures.
 
November’s release reported a 2.6% contraction in economic growth due to the lockdown in place at the time. While this was better than analysts had forecast, the slump still likely points to the UK facing a double-dip recession this winter.
 

What’s coming up?

Turning to this week’s session, the spotlight will be on the inauguration of Joe Biden as US President and his first few days in office.
 
Reports suggest that Biden seeks to introduce a raft of executive orders as soon as he takes office, many of which will aim to reverse Donald Trump’s policies.
 
However, the focus for USD investors looks to be the Biden administration's $1.9 trillion stimulus package, and whether any of Biden’s policies could involve tax hikes.
 
In the UK the focus will likely remain on domestic coronavirus developments as the threat of tougher restrictions continue to hang over the pound.
 
Finally, the focus for EUR investors this week looks to be on the European Central Bank’s (ECB) first policy meeting of 2021. Expect to see the euro face some headwinds if policymakers continue to raise concerns over the current strength of EUR exchange rates.
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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