Monthly wrap: GBP – Pound soars on upbeat market mood and rebound in economic activity

Philip McHugh August 12th 2020 - 2 minute read

Key takeaways:

–              Pound surges amid improving market sentiment.

–              BoE revises its growth forecasts higher despite gloomy GDP figures.

–              GBP Monthly lows: €1.09, $1.25, AU$1.77, NZ$1.90, C$1.69

–              GBP Monthly highs: €1.11, $1.31, AU$1.83, NZ$1.98, C$1.76
The pound roared higher over the past month, riding high on a wave of market optimism and broad weakness in the US dollar.

This improvement in market sentiment largely came on the back of positive headlines regarding a potential coronavirus vaccine. Added to optimism over the EU’s new coronavirus relief fund, this helped to bolster hopes for a speedy global recovery.

Sterling sentiment was lifted further by a run of upbeat UK economic releases, which revealed UK business activity surged to a five-year high in July.

On top of this, Chancellor Rishi Sunak’s announcement of new stimulus measures aimed at protecting and creating jobs buoyed GBP exchange rates.

However, it wasn’t all plain sailing for Sterling through July as the currency faced some headwinds due to a lack of progress in Brexit talks with the EU.

Meanwhile, the pound began to fade in August, with growing concerns over a second wave of coronavirus infections and an impending unemployment crisis dragging on Sterling sentiment.

The Bank of England (BoE) provided some temporary relief as it revised its 2020 growth forecasts higher. But this failed to counteract the UK’s latest GDP figures, which confirmed a sharp -20.4% contraction of growth in the second quarter plunged the country into a deep recession.

Looking ahead to the remainder of August, the direction of the UK’s coronavirus infection rate will likely prove a major catalyst of movement.

Should the infection rate begin to creep up again it could lead to more localised restrictions and further postponing of plans to continue reopening the economy.

On the data front, GBP investors will also be paying close attention to the latest UK PMI releases as another strong uptick in activity this month may keep hopes for a V-shaped recovery alive.

Of course, Brexit will also continue to influence Sterling sentiment as well, with GBP investors likely to grow increasingly jittery the nearer we get to December without a trade deal with the EU.

Written by
Philip McHugh

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