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Weekly Update: Pound Undermined by Second Wave Fears, US Dollar Rallies amidst Transatlantic Trade Jitters

The Pound struggled to find support this week as any optimism over the UK government’s plans to reopen more of the economy was undermined by a warning over a second wave of coronavirus infections.

The US Dollar, meanwhile, recouped some initial losses as markets were spooked by both a possible coronavirus resurgence as well as the threat of an EU-US trade war over the summer.

 

Pound Sterling Stifled by Second Wave Concerns

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

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

The Pound was stuck in a narrow range this week as the UK government’s plans to reopen more of the country were undermined by concerns of a second wave of coronavirus infections.

While GBP investors welcomed the news that pubs, restaurants and hairdressers will be allowed to reopen from 4th July when the 2m distancing rules are relaxed, any optimism was quickly undone after UK health experts warned about the risks of a coronavirus resurgence.

Looking ahead to next week, the focus will undoubtedly be back on Brexit as the UK and EU kick off ‘intensified’ trade talks.

 

Euro Knocked by Threat of US Trade Tariffs

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

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

The Euro opened this week on strong footing after some stronger-than-expected PMI figures bolstered hopes for a rebound in the Eurozone economy in the first quarter.

However, the single currency faced some headwinds in the latter half of the session as EUR investors were unnerved by the threat of trade tensions between the EU and US.

Coming up next week, the Euro may remain under pressure as the Eurozone’s latest consumer price index is expected to report the bloc suffered another month of deflation.

 

US Dollar Pares Losses on Transatlantic Trade Tensions

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 initially fell back this week as relief that the US-China trade deal remains in place helped to bolster market sentiment.

However, sentiment quickly soured again, with reports the White House is preparing $3.1bn worth of tariffs on EU goods and a startling spike in US coronavirus cases sent investors flocking back to the safe-haven ‘Greenback’ in the latter half of the week.

Turning to next week, the US Dollar may build on these gains if the latest ISM PMIs print positively or if June’s US payrolls reveal another sharp increase in employment growth.

 

Australian Dollar Fluctuates amidst Mixed Market Sentiment

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

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

Trade in the Australian Dollar was mixed over the past week mostly as a result of fluctuating market sentiment, with spikes in coronavirus cases around the world sapping some of the optimism which has fuelled an upswing in the ‘Aussie’ in recent weeks.

In the week ahead, with Australian data still thin on the ground, it’s likely we will see AUD exchange rates remain highly sensitive to market sentiment, likely stumbling if coronavirus jitters continue to grow.

 

Key Data

Jun 29 EUR Economic Sentiment (Jun)

Jun 30 GBP GDP (Q1)

Jun 30 EUR Inflation Rate (Jun)

Jul 01 GBP Brexit Talks

Jul 01 USD ISM Manufacturing PMI (Jun)

Jul 02 EUR Unemployment Rate (May)

Jul 02 USD Non-Farm Payrolls (Jun)

Jul 03 AUD Trade Balance (May)

Jul 03 AUD Retail Sales (May)

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