23/07 – Don’t mistake GBPUSD levels for sterling strength

Jeremy Thomson-Cook
Jeremy Thomson-Cook 23 July 2020

GBP: Risks remain

EUR: Near 2 year highs vs USD

USD: Pick your reason for USD weakness, they’re all valid


Sterling’s performance against the USD is a rare glimpse of light currently for a currency that is still struggling in a wider context this year. While GBPUSD is within the top 0.5% of its range, the pound is plumbing year to date lows against most of the commodity complex and looks ripe for further falls against the euro.

Currency always reminds me of the story of Cinderella; you have to pick someone to go to the ball with but Cinderella – the ideal candidate – doesn’t exist, so your stuck with an ugly sister. Sterling is an ugly sister but relatively, the US sister is even more ghastly now.

As noted before, we think these are great levels for GBPUSD for hedges given the risk to the pound from both domestic (Brexit, furlough scheme ending) and international (continued reliance on external funding, trade troubles with China/EU/US) factors moving forward.

Sterling risk is postponed until tomorrow’s reading of retail sales at 7am although we do have Bank of England Member Jonathan Haskel speaking on the economic impact of Covid-19 at noon.


EURUSD breached the 1.16 level by the faintest of margins yesterday for the first time since October 2018 and is poised for further gains given the ongoing ability of equity markets to push higher despite rising geopolitical risks.

Both German and French consumer and industrial confidence numbers released this morning have showed a modest improvement of the kind you would expect given a reopening of the wider economy.

US Dollar

Yet again it’s a case of one can pick whatever reason they want for USD weakness given the number of factors that have combined to take the USD lower; rising equity prices, US bond yields looking anchored for the foreseeable at current levels, increased Covid-19 cases in juxtaposition to the rest of the world, a heightening of US/China tensions on threats of further embassy closures and escalation of federal police actions in some US cities.

There are enough reasons for markets to believe that further dollar liquidity may be just around the corner and hence keep the USD on the back foot.

We get weekly U.S. claims data today, after the Census Bureau’s Household Pulse Survey released Wednesday indicated employment declining by 6.7m in the weekly poll. A poor number could easily keep the USD in reverse gear.


The AUD has popped higher once again on the back of a rising risk tide and confirmation from the ratings agency S&P that the country should keep its AAA rating. We continue to believe that AUD should outperform its antipodean cousin moving forward.

Have a great day.