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10/08 – Week starts with a stronger dollar

GBP: Key data week coming up

EUR: Record support for further gains

USD: Payroll gains knocked by Trump orders

Sterling

Sterling is still digesting last week’s Bank of England report that showed a more optimistic expected path for the UK economy than most market participants, myself included, foresee. Following what was quite a busy week for the currency, we expect sterling to once again trade on wider risk sentiment although there are some important data points due.

Tomorrow will see the latest look at the UK jobs market while Wednesday we will receive the first reading of UK GDP for the 2nd quarter which will confirm just how deep the ongoing pandemic recession has been. Initial estimates are for a 20.7% decline in growth in the three months from the end of March.

Brexit talks are unlikely to add anything to the pot with most of Europe on holiday and markets having snoozed that particular alarm until September.

Euro

EURUSD came lower much like everything else on Friday afternoon following that strong jobs report and a slight increase in concerns that virus numbers remain heading in the wrong direction in many parts of the Eurozone.

Despite that bullish bets on the single currency reached an all-time high last week with bets that the USD would continue declining rising to an 8 year high; the pain trade is for EURUSD to continue falling from these exuberant levels.

US Dollar

Friday’s dollar markets and Monday’s dollar markets are pretty similar although some of the strength that Friday’s payrolls announcement brought has drifted out of prices through the overnight Asian session.

The US jobs market was shown to have added 1.76m jobs through the month of July slightly besting expectations around the 1.5m mark. Hours worked were higher as were wages and while there is a long way to travel before we can be assured that the jobs market has enough resilience to face up to increased virus risks, the dollar was in need of some good news to compliment the better than expected jobs numbers on Thursday.

Over the weekend the impasse in Congress over further stimulus was heightened by the Trump Administration signing executive orders that will backstop unemployment benefits, cut incomes taxes and suspend the ability for landlords to evict tenants who haven’t paid rent.

A wider and larger plan is needed for markets to be fully happy but even an amuse bouche of stimulus is better than an empty plate and hopes remain that lawmakers can get together on spending soon. The executive orders have enough firepower to keep spending going for 2 months.

Inflation figures released tomorrow and retail sales numbers on Friday will give us a better look at how demand is evolving in the US consumer economy and whether recent lockdowns have damaged sentiment.

A number of Fed speakers are also due through the week but we do not expect much deviation from recent communications and therefore little impact on the USD.

Elsewhere

Asian markets have continued to react to President Trump’s executive orders on Friday that no US business will be able to transact with Chinese social media platforms WeChat or TikTok from 6 weeks’ time although bank holidays in Singapore and Japan has kept things pretty quiet.

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.