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Sterling holds gains over weekend

Sterling holds gains over weekend

GBP

There were no top tier UK data releases or major domestic developments on Friday, but there were further concerns over the UK coronavirus situation. Despite negative market sentiment the Pound held steady throughout the morning. Month-end positioning gave rise to solid Sterling purchasing demand, but the Pound lost ground as the  European market closed, with a dip below 1.3100 on the Dollar and near 1.1111 on the Euro. The Pound’s performance secured the strongest monthly advance against the Dollar since 2009.

Futures market data revealed a significant increase in bets against the Pound, the highest level since early June. This increases the potential for short covering (rapid buying to close positions) if the Pound doesn’t drop. Trade talk developments will be scrutinised and the UK and US will hold talks in Washington on today and tomorrow. Sterling opens just below  1.3100 and the Euro at 1.1111 despite concerns over the fundamental economic outlook.

 

USD

US personal spending increased 5.6% for June, close to expectations while personal income declined 1.1% following a 4.4% dip previously. The core PCE prices index increased 0.9% over the year from 1.0%. The Chicago PMI manufacturing index strengthened to 51.9 from 36.6 previously and the highest reading since July 2019.

Overall, the EUR strengthened to near 1.1770 against the Dollar at the US close as the dollar staged a significant recovery from 26-month lows. The greenback overall still posted the sharpest monthly decline for 10 years.

 

EUR 

Euro-zone GDP declined 12.1% in the second quarter of 2020 following a 3.6% decline for the second quarter. This was weaker than consensus forecasts of 11.2% with the annual decline at 15.0%. Italian GDP declined 12.4%, although this was stronger than consensus forecasts of a 15.0% contraction. In contrast, Spanish GDP declined 18.5% for the quarter. The flash inflation estimate recorded an increase in the CPI inflation rate to 0.4% from 0.3% and above consensus forecasts of 0.3% while the underlying rate increased to 1.2% from 0.8% and well above market expectations of 0.8%.

There was some speculation that the ECB could express concern over the speed of the Euro’s gains, especially given the need to support exports and concern over disinflationary pressures. There was choppy month-end trading with the Euro also vulnerable to a correction after sharp gains.

 

Data to watch 

14:00 – USD – ISM Manufacturing PMI

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