GBP: Brexit risks looming

EUR: Stuck in ranges ahead of German GDP

USD: Trump wants negative rates and a strong USD

Sterling

The pound struggled to make back any ground yesterday and is pinned beneath the 1.22 and 1.13 levels in GBPUSD and GBPEUR respectively. There’s not much news out there to immediately support the pound and the tide of both global and local sentiment becoming increasingly negative is an added pressure on GBP.

While the data calendar is quiet, we will receive the latest read-out of this week’s Brexit trade negotiations this afternoon. The mood music from Brussels is that these negotiations are not going anywhere quickly with 6 weeks to go until the UK government’s self-imposed deadline. An extension of the transition period would help sterling and the decision of the UK government to plough on into a no-deal Brexit would likely see the pound move to similar levels it saw in the dark days of March.

Euro

The euro is stuck in a range against both the USD and JPY at the moment and isn’t offering much guidance on where it wants to go next. We suspect that if the market starts to talk about inflation then the euro may be one of the first currencies to move higher but that seems like a long shot for now.

German GDP and Italian industrial orders are both due at 9am and given the time lag in both series, will be used as a guide as to how deep the hole the wider Eurozone finds itself in economically.

US Dollar

Having lost ground for the past two weeks, the dollar is likely to finish this week stronger. The majority of this strength is coming from the wider negative sentiment seen from investors following the latest appearance by Fed Chair Jerome Powell, highlighting the ongoing risks to the US economy.

Comments from the White House are not helping to make the path of the dollar predictable; President Trump announced yesterday both that “It’s a great time to have a strong dollar” and that he also wanted the Federal Reserve to move interest rates into negative territory, a move that would likely weaken the USD.

News on increased infections within some states that have re-opened widely in the US may curtail further risk appetite; the state of Texas saw its largest increase in cases since the beginning of the pandemic yesterday, this comes a fortnight after authorities decided it prudent to reopen parts of the economy.

Yesterday’s US jobs numbers were not good enough to turn around market sentiment with near on 23m remaining unemployed in the US.

Elsewhere

Despite better than expected Chinese industrial output numbers, the AUD is listening more to a weak retail sales number that slid 7.5% on the month. We expect China to announce additional stimulus into the economy next week as part of their National Policy Congress which may help regional currencies.

Have a great day, a wonderful weekend and please take care.