02/06 – GBP/USD hits one month high

Jeremy Thomson-Cook
Jeremy Thomson-Cook 02 June 2020

GBP: Sterling flying higher on risk sentiment
EUR: Manufacturing remains in recession
USD: Investors looking through the unrest


Sterling is a rocket ship this morning moving to a one month high against the USD and a 2 week high against the EUR. The reason for sterling’s outperformance is not particularly clear and we therefore have to remain cautious as to whether the currency can remain this strong much longer. Given Brexit risks and the continued chat from the Bank of England around the chances of a move to negative interest rates, GBP looks expensive at current levels.

Overnight news showed the first readout of UK house prices since the Covid-19 crisis began, with the Nationwide seeing at 1.7% decline in the month of March. The data is going to be inexact moving forward; there are issues with data collection and we cannot fail to think that increases in unemployment and demographic changes will have a profound effect on where we live and what those properties look like.


The reopening continues in Europe but news from the local Eurozone economies continue to show that the worst is not over. All manufacturing PMIs in Europe were below 50.0, meaning that sentiment in the sector continues to worsen. There is little sign of a recovery in the European manufacturing sector yet with hopes being that output and future order declines may be able to bottom out in the coming months. Focus is not on gaining new work, but instead shoring up existing projects and piecing together supply chains that may be lying in tatters.

Life may be returning to normal for some but the economy remains in a very poor condition.

The bright spot for the euro is that this is not just a European problem.

US Dollar

The USD is very highly correlated with the movements in global stock markets and, in spite of cities in the US seemingly tearing themselves apart live on CNN, investors seem content to look through the smoke and sirens and push stock markets higher. There are also US/China tensions bubbling away in the background that can easily torpedo this rally.

As above, while parts of the US, like Europe, were reopening the civil unrest is likely to delay that. Investors could conceivably continue their rotation away from the USD and into EUR, betting that European companies are back up and running before their US counterparts, pushing the pair towards 1.14.

The data calendar in the US is quiet today; anything announced today would be largely ignored anyway seemingly.


Disappointingly the Reserve Bank of Australia decided to not talk down the AUD this morning as part of its latest policy meeting. Mirroring recent communications from the central bank, Governor Lane noted that alongside a drop in infections, consumer spending had increased and the number of hours worked by employees had risen, showing a move to normality.

We expect the AUD to maintain its recent position as long as the wider investment narrative remains one of higher equity markets and a weaker USD.

Have a great day and please take care.