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Sterling dips on trade talk pessimism

Sterling dips on trade talk pessimism


Sterling was unable to draw further support from the higher than expected inflation data with expectations the rate would retreat again in August and with most investment banks expecting the Bank of England maintaining a very expansionary policy over the medium term.

With the Dollar securing a slight correction, Sterling retreated to below 1.3200 coming from previous highs of the 1.3270. The UK currency was also unable to secure further headway against the Euro and closed just above the 1.1060 mark.

Markets will continue to monitor developments surrounding EU-UK trade talks as further stalls expected with both sides continuing to play hardball, although global developments may well dominate. 


Minutes from July’s Federal Reserve (Fed) policy meeting reinforced the committee’s concerns over the economic outlook, especially given a high degree of uncertainty over coronavirus developments. Overall, there were downside risks to the outlook with a slower pace of recovery in the second half of 2020 even though the committee assumed that further fiscal stimulus would be sanctioned. The lack of fiscal support would risk further economic dislocation in the short term.

Most participants considered that a revised long-term statement of goals could make policy clearer. There were, however, also comments that most members considered yield caps and targets would provide only modest benefits and could spur excessive balance sheet growth.

Overall, the lack of enthusiasm for yield curve control and no clear rhetoric on any shift in inflation goals triggered dollar gains. Commodity currencies retreated sharply as dollar short covering intensified amid a lack of liquidity.



The Euro-zone current account surplus widened to 21bn for June from 11bn previously while the 12-month surplus amounted to 267bn and 2.2% of GDP. The current surplus position will provide underlying Euro support, especially when compared with the US deficit.

The Euro was subjected to a limited correction yesterday with the single currency seen as overbought as the Dollar received a boost from the FOMC’s July meeting’s minutes, which showed officials lacked support for the yield curve control. 

Coronavirus developments also had some negative impact on the Euro as Spain reported its highest number of new daily infections since lockdown was lifted with an increase of over 3,700 with additional cases also being registered in Germany.

As of writing, the Euro trades around 1.1855 against its US counterpart. 

Data to watch

13:30 – USD – Philly Fed Manufacturing Index 

13:30 – USD – Unemployment Claims

15:00 – USD – CB Leading Index

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