Sterling looks to build on firm foundations

GBP

The pound ended last week flat after trading in a 15-pip range against the Euro for the whole of Friday afternoon. Against the Dollar it lost some of the gains it had racked up during the back end of the week but remained firmly above 1.30.

GBP has a busy mid-week data schedule with unemployment on Tuesday, followed Q2 GDP on Wednesday. Any combination of better than expected data would push the pound higher and could lead to breaking 1.32 on cable, though a survey showing that a third of UK employers may lay off workers may make this difficult.

Positive comments about Brexit and UK Japan trade talks from several senior ministers, including Truss and Sunak has reduced downside risk to Pound. Two wall street FX analyst have changed their forecast on the pound to have no “outright negative view” and believe that a Brexit deal will be agreed by autumn.

USD

The Dollar had a strong finish to last week, this came after losing some ground in the lead up to non-farm payrolls but a positive job reports of 1.76 million new jobs gave the dollar a boost as traders started to trim some of their previous short positions. Though this news appears to be positive at first glance it is important to remember that the data only shows up to the second week in July, meaning the latest spike in infections will not show up until next month report. Unemployment rate remains higher than any point during the Great Financial Crash at 10.2%, so the Dollar is still not out of the woods yet.

The big political news out of the US this weekend was a result of President Trump signing a series of executive orders after the latest stimulus bill stalled in Congress. These included a reduced unemployment insurance from $600 to $400 per week, relief on student loans, a freeze on evictions and a pause on payroll tax. Though this was a big headline, there was a muted reaction from the market as the Democrats were holding out for a bigger stimulus package worth $3 trillion. But the reduced package may lead to a stronger Dollar as the effect on the deficit won’t be quite as bad.

EUR

The Euro showed some weakness against the Dollar at the end of last week after reaching a two year high, giving up 1.3% of gains and settling into the high 1.17s. The single currency has a quiet week on the data front until Friday with the release of Q2 GDP. Anything better than -15% will give the Euro a boost. Though this could just be a flash in the pan with the Eurozone currently on tender hooks as it seems to be on a brink of a second wave of infections. A second lockdown would certainly delay an economic recovery.