24/08 – Is the optimism starting to fade?

GBP: Cable fails once more to break higher

EUR: Rally starting to look tired

USD: Political pressure heating up

Sterling

Sterling failed to break the 1.3250 level once more in GBPUSD on Friday. That is not to suggest that a further squeeze higher for the pair is out of the question; markets are growing a little tired of holding short positions against the pound and an extension of the furlough scheme and/or a positive Brexit headline would easily be enough to push the pound higher across the board.

For now we will have to wait for either with Brexit talks resuming in Brussels and the Chancellor set to finalise his plans for the furlough scheme in the coming weeks so as to give employers enough time to start any redundancy schemes that may need activating should no extension be forthcoming.

There is little sterling data this week with only speeches from Bank of England Chief Economist Andy Haldane – him of the V-shaped recovery – and the Governor Andrew Bailey on Wednesday and Friday respectively.

Euro

Doubts remain over the sustainability of the EUR at current levels, especially against the USD, heading into the close of the year. Friday’s PMI numbers showed sharp dips in confidence and output in the manufacturing and services sectors in the Eurozone with these figures largely collected before the recent increases in Covid-19 infections and subsequent lockdowns.

At the moment markets seem to be happy to ignore infection numbers given falling mortality rates.

There is little European data today.

US Dollar

It is another fairly major week for the USD with the political atmosphere heating up ahead of November’s election and the most important policy talking shop of the year in the US starting in Jackson Hole.

The Republican National Convention begins today in Charlotte and once over we can start to pay attention to the polling put forward by the many companies looking to determine just how the American people are feeling. Following the Democratic Convention last week Vice President Joe Biden has an 8% lead over President Trump.

The election takes place on November 3rd.

Dollar momentum died a little last week and we may just be in for a week of summer lulls ahead of a return to full liquidity in September. If the market’s desire for fresh highs in stocks looks set to tire further, then we could be in for further USD strength in the coming sessions.

Elsewhere

NZD has been the largest faller overnight following the announcement that the government will extend the lockdown imposed on the Auckland area for another four days in order to fully ensure the eradication of the Covid-19 virus.

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.