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 starting slowly so far today, with GBP/EUR flat at €1.1385 and GBP/USD rangebound at $1.3797. GBP/CAD is stable at C$1.7571, while GBP/AUD and GBP/NZD hold steady at AU$1.7831 and NZ$1.9146, respectively.
In the spotlight today we have the UK’s latest GDP figures, where stronger-than-expected growth in the last quarter of 2020 may lend some support to Sterling.
What’s been happening?The pound struggled to find support through yesterday’s trading session after BoE Governor Andrew Bailey warned that the UK could be cut off from the EU’s financial service sector.
In the governor’s annual Mansion House speech to the City, Bailey claimed that the EU’s demands in the current round of Brexit talks are ‘unrealistic’ and could be viewed as a sign that the EU has no plans to grant continued access to its financial markets.
The US dollar, meanwhile, extended its recent losses on Thursday, with the USD selling bias continuing to prevail amidst a drop in US Treasury yields and an improvement in market risk appetite.
In addition, the publication of last week’s jobless claims added to the pressure on the ‘Greenback’, as new claims unexpectedly rose at the same time that the previous week’s figures were revised higher.
This slump in the US dollar continued to benefit the euro, however, due to the negative correlation in the currency market’s most traded pairing, although the single currency found its gains tempered by the EU’s ongoing vaccination woes.
What’s coming up?Turning today’s session, the spotlight this morning will no doubt be on the publication of the UK’s latest GDP figures.
These revealed that the UK economy expanded by 1% in the last quarter of 2020, beating forecasts for a more modest 0.5% expansion, and helping the UK to avoid a double-dip recession.
However, the figures also revealed that the UK suffered a record annual contraction in 2020, with the economy shrinking by 9.9%, and potentially limiting the upside in the pound today.
Also on today’s agenda will be the publication of the University of Michigan’s latest US consumer sentiment index later this afternoon, where an improvement in household sentiment in February may help the US dollar to make gains.
Finally, with EUR data releases still thin on the ground today, we expect any movement in the euro to continue to be driven by its trading relationship with the US dollar.
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)