07/08 – Markets positioned for another round of USD weakness

GBP: Unable to push through 1.32

EUR: Biding its time

USD: Jobs day in America

Sterling

After the fun and excitement of yesterday morning’s Bank of England decision and monetary policy statement, sterling calmed down for the day and by the close of the European session had pulled lower from the immediate post-meeting highs.

We noted yesterday that there is a lot of two-way risk in sterling prices moving forward, that both monetary and fiscal policy as well as political news has the ability to shift the pound in either direction, and in some cases, in an exaggerated manner.

Currency predictions are often a mug’s game but the one thing that we are certain about is that in the coming months won’t be sat where it is this morning; with everything from negative interest rates, Brexit, the end of the furlough scheme and the wider possibility of 2nd wave of Covid-19 through winter sterling has issues to contend with in the coming months.

If these levels in GBPUSD, GBPEUR, GBPJPY or whatever cross you monitor work for you currently, we believe there is a great amount of value in hedging that price for your ongoing business operations given the ongoing risks that sterling will have to contend with.

Euro

After mounting a bit of a charge to try and retake the 1.19 level EURUSD has fallen back amid broad USD resistance ahead of today’s payrolls report. For now, the single currency is trying to keep its nose clean and stay out of the fracas and it will be interesting to see whether any shift higher in risk aversion becomes a reason to buy the EUR.

US Dollar

Today is jobs day in America with the monthly announcement of how many positions were filled in the US in the past month. The pandemic and the nature of its rapid changes in business operations has made what used to be the most important economic indicator for the US economy slightly stale but it would be incorrect to think that markets will ignore the release at 13.30.

Anything that confirms the prevailing market mood that the recovery in the US has started to splutter will likely keep the USD on the back foot into the weekend with only really a strong increase in jobs numbers and hours worked – a tell-tale sign of workers returning to jobs – expected to push the greenback higher.

The dollar is also a little stronger on news that the US will ban American businesses from doing business with the companies that own the Chinese social media platforms WeChat and TikTok over privacy and data concerns. While this has been telegraphed for a while, a ratcheting up of trade tensions will always rock the boat.

We expect similar announcements to be made in the lead-in to November’s election.

Lastly, negotiations in Congress over further stimulus have yet to show any sign of success and will add to the negativity on the USD should the payrolls announcement disappoint.

Elsewhere

Tensions between the US and China are never good for the Aussie dollar with the currency down 0.4% on the session so far.

Have a great day and a better weekend.

Share:
Jeremy Thomson-Cook

Jeremy Thomson-Cook

Jeremy has over 13 years experience working in the FX industry. As a specialist in political risk mitigation and currency hedging, he regularly advises clients on the day-to-day moves of the markets and the implications of fiscal and monetary policy on international businesses.