09/07 – Dollar weakens as investors look through infection increases

GBP: Sunak measures fail to ignite sterling

EUR: EURUSD breaks to a 1 month high

USD: Rising stocks limit dollar attractiveness

Sterling

Sterling has continued to roll higher this morning against the USD albeit not as a result of the latest round of measures from the Chancellor. Instead and more prosaically, weakness in the wider USD caused by rising equity markets has come to the aid of the pound.

We had assigned a target on GBPUSD to the 1.2650 mark which we have as near as makes no difference achieved overnight. While there is always the possibility of an overshoot, we think that sterling may find it difficult to extract many more gains in the short term. Those of you who sell GBP and buy USD might want to think about hedging some of that exposure around current levels.

While the Chancellor’s announcements are front page news everywhere, there was not much more than what had been leaked in the past few days. We expect yet another budget in the Autumn to address more important measures such as the true end of the furlough scheme and Brexit preparedness; such an announcement will see the cash splashed once again.

Euro

Mirroring the move higher for the pound against the USD, the euro has also managed to flex a little higher this morning against the greenback and sits a stone’s throw from our near-term target of 1.14.

The single currency has the potential to drive higher if reports that European governments are looking to take direct equity stakes in European SMEs in order to support their operations are to be believed.

US Dollar

The USD continues to swoon on greater risk appetite although the weekly hurdle of the latest round of jobless claims numbers always has the potential to trip the optimists up. This week’s reading is being seen as slightly more important than the last couple given the sustained increase in Covid-19 cases in the States and whether we have therefore seen an increase in number of people who have lost their jobs due to regional lockdowns.

Expectations that the US election may see a change in the White House may also be weighing on the USD. All recent polls have shown a sizeable lead for the Democratic candidate Joe Biden over President Trump; Democrats are typically seen as a pressure on the USD with outsized dollar losses likely if the Republicans lose out on their control of the Senate.

Elsewhere

Away from the wider story of dollar weakness – and most currencies gaining against it – things in the world of currency remain pretty quiet.  The main question remains, just how long will the optimism last with the number of Covid-19 cases globally passing the 12 million mark.

In the meantime, have a great day.

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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.