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Global Risk Benefiting Sterling

Global Risk Benefiting Sterling

GBP Better risk appetite globally favoured the Pound as international influences dominated Sterling trading. Brexit negotiations still generated concern with fears that there would be no short-term progress. The EU has recently concentrated its efforts on securing agreement for it’s recovery fund and there will still be very little political energy from the EU side in the short term. The Pound broke above the 1.2670 area on the Dollar, which generated fresh buying interest. As the Dollar suffere wider selling pressure the Pound broke above 1.2700. Sterling also pushed to test the 1.1111 before the Euro found support.

Reservations over UK economic fundamentals continued; particularly future trading relationship. Reports emerged that the UK government had abandoned hopes of a trade deal with the US before the election and there were also reports that EU talks were close to collapse. Sterling was held near 1.2720 on the Dollar and the Euro strengthened to near 1.1025 before correcting slightly.

USD

There were no major US data releases during the day yesterday and Federal Reserve (Fed) officials remained silent ahead of next week’s policy meeting.

The Chicago Fed national activity index increased to 4.1 for June from 3.5 the previous month with strong contributions from production and employment, although there was a small negative contribution from the orders and sales index.

The dollar was also exposed to notable selling pressure as defensive demand continued to wane and concerns over US fundamentals increased. In particular, there were concerns over the US twin deficits and risk of a fresh slowdown.

The US registered a daily death toll of just over 1,000 for Tuesday, the highest figure since early June with the number of new cases at above 68,000. Markets continued to monitor fiscal-policy developments with the current unemployment insurance support package due to expire at the end of July. The decision to push Shelton’s nomination as Fed Governor to a full Senate vote also had some impact in undermining the dollar.

EUR

Following the agreement of the EU Recovery fund, Euro sentiment remained strong. From a longer-term perspective, capital inflows are expected to be strong, especially with a reduction in risk premiums on assets. Italian bond yields declined to the lowest level since early 2020 which also helped underpin stronger Euro sentiment as the common currency moved above the 1.1500 level against the Dollar.

The Euro was initially unable to make any headway but gained fresh support during the US session as the Dollar was left exposed as defensive demand continued to wane on concerns over US fundamentals.

As of writing, the Euro trades around the 1.1530 mark against its US counterpart. 

 

Data to watch

14:30 – USD – Crude Oil Inventories 

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