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Weekly Update: US Dollar Reverses Losses as Gloomy Fed Forecasts Sour Market Sentiment, Pound Plunges in Risk-Off Trade

The Pound cemented its new status as a risk sensitive currency over the past week as it largely tracked global risk appetite, leading to a sharp plunge in the latter half of the week when market mood soured.

The US Dollar, meanwhile, swept higher in this risk-off trade, with the ‘Greenback’ ending a 10-day losing streak despite the Federal Reserve’s gloomy US forecasts triggering the slump in market sentiment.


Pound Sterling Undermined by Souring Market Mood

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

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

The Pound dived this week, with the currency’s gains erased following a sudden souring of market sentiment in the latter half of the session.

Offering little support to Sterling was the UK’s latest GDP figures, which revealed the UK economy suffered its largest monthly contraction of growth on record in April, during the country’s first full month of lockdown.

Next week looks to be busy for GBP investors, with a slew of high-impact UK economic releases and the Bank of England’s latest policy decision, which is widely expected to announce an expansion of its stimulus programme.


Euro Mostly Rangebound in Quiet Week

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

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

The Euro got off to a solid start this week after the Eurozone’s latest GDP estimate saw first quarter growth revised up from –3.8% to –3.6%.

However, the single currency struggled to build on this momentum through the remainder of the session as the absence of any notable data left EUR exchange rates mostly directionless.

Coming up next week, the Euro could find some support through the first part of the week if the latest ZEW surveys report economic sentiment in the Eurozone continued to improve this month.


US Dollar Reverses Recent Sell-Off as Market Sentiment Slumps

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

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

The US Dollar had opened this week on the back foot, with the recent USD sell-off a result of an upbeat market mood that propelled the ‘Greenback’ to multi-month lows.

However, this paradigm shifted in the middle of the week as some gloomy forecasts from the Federal Reserve punctured hopes for a swift recovery in the global economy, which alongside fears of a second wave of coronavirus infection prompted a rush for the safe-haven US Dollar.

Turning to next week, a rebound in US retail sales could give USD another leg up at the start of the session, while the looming threat of renewed US-China tensions is also likely to prove supportive of the US Dollar.


Australian Dollar Subdued by Risk-Off Trade

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

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

The Australian Dollar initially climbed to new multi-month highs this week, with the currency finding plenty of support amidst rising investor confidence.

However, AUD exchange rates fell victim to the sudden reversal of market sentiment in the latter half of the week, which alongside concerns over rising tensions between Australia and China saw the ‘Aussie’ lose most of its gains.

In the week ahead, AUD investors will be focused on Australia’s latest employment figures, where a sharp increase in the unemployment rate last month could weigh heavily on the Australian Dollar.


Key Data

Jun 16 GBP Unemployment Rate (Apr)

Jun 16 GBP Wage Growth (Apr)

Jun 16 EUR ZEW Economic Sentiment Index (Jun)

Jun 16 USD Retail Sales (May)

Jun 17 GBP Inflation Rate (May)

Jun 17 EUR Inflation Rate (May)

Jun 18 AUD Unemployment Rate (May)

Jun 18 GBP BoE Rate Decision

Jun 18 USD Initial Jobless Claims (13/Jun)

Jun 19 GBP Retail Sales (May)

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