Pound Sterling

Pound Dented by Brexit Uncertainty, US Dollar Soars in Bearish Trade

The Pound was placed on the defensive through this week, with the currency being undermined by Brexit jitters and dovish Bank of England comments. 

At the same time, the US Dollar rocketed, with risk-off flows and hawkish comments from Federal Reserve Chair Jerome Powell propelling the safe-haven currency higher. 

Pound Stumbles on Brexit Jitters 

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

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

The Pound trended broadly lower this week, initially being undermined by renewed Brexit jitters as MPs voted in favour of a second reading of the government’s Northern Ireland protocol bill. 

Adding to Sterling’s woes in the latter half of the week was a speech from Bank of England (BoE) Governor Andrew Bailey, in which he was unwilling to commit to a 50bps hike at the bank’s next meeting. 

In the absence of any notable UK economic data, movement in the Pound next week may be determined by UK political developments and ongoing economic concerns. 

Euro Buoyed by Record Eurozone Inflation 

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

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

The Euro drew support through the first half of this week thanks to some hawkish comments from European Central Bank (ECB) President Christine Lagarde. 

After faltering in the middle of the week amid a strong uptick in the US Dollar, the Euro then rallied again at the end of the session as Eurozone inflation climbed to a new record high. 

Germany’s latest industrial releases may act as the main catalyst of movement for the Euro next week, with the single currency potentially facing headwinds if factory orders and industrial production contract as forecast in May. 

US Dollar Rallies amid Souring Mood 

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

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

The US Dollar enjoyed notable support this week, with the safe-haven currency being underpinned by risk-off flows and rising US Treasury yields. 

Reinforcing the upside in the ‘Greenback’ were comments from Federal Reserve Chair Jerome Powell, in which he claimed the US economy can withstand more monetary tightening and that the Fed will prioritise bringing inflation back under control, even at the expense of US economic growth. 

The publication of the latest US non farm payroll figures will act as a key catalyst for the US Dollar next week. Will a slowdown in US employment growth weigh on USD exchange rates? 

Australian Dollar Plunges in Risk-Off Trade 

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

AUD/USD – Down two cents on the week’s opening levels 

The Australian Dollar faced some heavy selling pressure this week as a prevailing risk-off mood saw investors shun the high-yield currency. 

This also saw AUD investors largely shrug off Australia’s latest retail sales figures, despite June’s preliminary release printing well above expectations. 

In the spotlight next week will be the Reserve Bank of Australia’s (RBA) latest interest rate. This could see the ‘Aussie’ rally if the bank opts for another 50bps hike. 

Key Data  

Jul 5 AUD Retail Sales (May) 

Jul 5 AUD RBA Interest Rate Decision  

Jul 5 GBP Services PMI (Jun) 

Jul 6 EUR German Factory Orders (May) 

Jul 6 EUR Retail Sales (May) 

Jul 6 USD ISM Non-Manufacturing PMI (Jun) 

Jul 6 USD FOMC Minutes  

Jul 7 AUD Trade Balance (May)  

Jul 7 EUR German Industrial Production (May) 

Jul 8 USD Non Farm Payrolls (Jun)