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Pound extends recovery rally

currency-newsPound extends recovery rally
The pound strengthened on Monday for a third consecutive session, recovering more losses, with GBP/EUR above the start of last week’s levels.

Sterling is edging higher again this morning, with GBP/EUR up to €1.1741 and GBP/USD stable at $1.3612. GBP/CAD is firm at CA$1.7154, while GBP/AUD and GBP/NZD strengthen at AU$1.8722 and NZ$1.9576, respectively.

Coming up, will robust ISM services PMI growth strengthen the Federal Reserve’s case for tapering its monetary policy and support the US dollar?

What’s been happening?

The pound made gains across the board yesterday as a more positive risk-on tone at the start of the month appeared to drive Sterling’s recovery.

Meanwhile, UK Chancellor Rishi Sunak insisted the fuel shortage is easing as the army began delivering to petrol stations, suggesting the end of the crisis could be in sight.

Amid the improving market sentiment, safe-haven demand for the US dollar declined during the European session.

However, better-than-expected 1.2% US factory orders growth for August, up from 0.7% in July, helped limit USD losses. The US dollar later steadied during the US session as market sentiment soured and safe-haven demand picked up.

The euro benefitted from US dollar weakness due to the negative correlation in the pairing, but the single currency struggled for clear direction amid a lack of notable EUR data and an improving market mood.

In addition, the Eurozone’s higher-than-expected rise in inflation at the end of last week appeared to continue weighing on EUR exchange rates, with the European Central Bank (ECB) appearing to maintain its stance on loose monetary policy.

What’s coming up?

Looking ahead, the US ISM non-manufacturing PMI for September will be the main focus for USD investors today.

Another month of growth is expected in the US service sector, although slightly down on August’s levels. A strong reading, insight into the US jobs market, and inflation indicators could all influence the Federal Reserve’s decision on whether to taper its monetary policy.

Elsewhere, finalised UK and Eurozone services PMIs may also drive GBP and EUR movement.

Both are expected to remain in growth territory but to have slowed in September, potentially putting pressure on the pound and euro if they come in as forecast.

UK fuel shortages and economic growth concerns could continue to threaten to derail the pound’s recent rally.

Meanwhile, a speech from ECB President Christine Lagarde could stoke some volatility in the single currency if any insight into the bank’s positon on increasing inflationary pressure is offered.
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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