Pound Sterling

Brexit Headlines Drive Pound Volatility, Trump Covid-19 News Boosts Safe-Haven US Dollar

The Pound traded in a wide range this week, fluctuating wildly on conflicting Brexit headlines emerging from the UK and EU.

At the same time, the US Dollar declined through the week as market sentiment improved. However, Donald Trump’s positive coronavirus test and hopes fading of US stimulus passing US Congress has started to lift safe-haven demand for the US Dollar.

Pound Fluctuates on Contrasting Brexit Reports

GBP/EUR – Up a cent on the week’s opening levels

GBP/USD – Up two cents on the week’s opening levels

The Pound received a boost early in the week as several Bank of England (BoE) policymakers dismissed speculation negative interest rates would be used soon, as well as early optimism over Brexit trade talks.

The Pound has swung between optimism of a UK-EU trade deal being agreed, to falling on pessimistic reports, such as the EU formally launching legal action against the UK for breaching the Withdrawal Agreement, causing speculation talks could break down.

However, the Pound is gaining ahead of Boris Johnson’s meeting with European Commission President Ursula von der Leyen on Saturday as Brexit looks likely to continue driving movement in the Pound next week.

Euro Slips on ECB President Lagarde’s Comments

EUR/GBP – Down one pence on the week’s opening levels

EUR/USD – Up a cent on the week’s opening levels

The Euro trended lower this week after European Central Bank President Christine Lagarde warned of fragility in the Eurozone’s recovery and the danger of weak inflation.

The Eurozone’s inflation rate data at the end of the week highlighted the alarming challenge as the Eurozone suffered a second month of deflation, with inflation at an annual rate of -0.3%.

Looking to next week’s session, EUR exchange rates will be driven by data from Germany’s latest industrial production and factory orders, which will offer insight into whether the Eurozone’s recovery has slowed while coronavirus cases surge again.

US Dollar Recovers Losses after Trump Tests Positive for Coronavirus

USD/GBP – Down one pence on the week’s opening levels

USD/EUR – Down one cent on the week’s opening levels

The US Dollar fell through this week as risk appetite picked up in more upbeat trade on early hopes of a new coronavirus stimulus package passing through US Congress.

However, this optimism faded at the end of the week as Donald Trump confirmed he had tested positive for coronavirus, with the US election a month away, and a bipartisan fiscal stimulus deal appears to have disappeared.

Looking ahead, the ‘Greenback’ could experience volatility as market respond to lower-than-forecast US non farm payrolls data, while an improvement in the service sector last month would also add support. However, increasing political uncertainty could be the main driver of USD movement.

Australian Dollar Boosted in Risk-On Trade

AUD/GBP – Unchanged on the week’s opening levels

AUD/USD – Up one cent on the week’s opening levels

The Australian Dollar found support through the week on improved market sentiment as AUD exchange rates recovered some of the previous week’s losses.

However, market sentiment soured on Friday on news from the US, limiting the Australian Dollar’s gains. Added to this, a -4% drop in retail sales in August also weighed on the ‘Aussie’.

The Reserve Bank of Australia’s (RBA) latest rate decision will be the focus for AUD investors next week. While no policy changes are expected, the strength of Australian Dollar exchange rates will likely be a key point as the bank may look to talk down the ‘Aussie’.

Key Data

Oct 5 EUR Retail Sales (Aug)

Oct 5 USD ISM Non-Manufacturing PMI (Sep)

Oct 5 GBP Services PMI (Sep)

Oct 5 GBP Construction PMI (Sep)

Oct 5 AUD Business Confidence (Sep)

Oct 6 AUD Trade Balance (Aug)

Oct 6 AUD RBA Rate Decision

Oct 6 USD JOLTs Job Openings (Aug)

Oct 6 EUR German Factory Orders (Aug)

Oct 7 EUR German Industrial Production (Aug)

Oct 7 USD FOMC Minutes

Oct 9 GBP GDP (Aug)