27/07 – Dollar still losing ground

GBP: Quieter week, influences elsewhere

EUR: Pushing towards 1.18

USD: No good news for dollar bulls

Sterling

Sterling has pulled higher against the USD alongside most other G10 currencies although it has been unable to replicate that strength against the single currency and away from the dollar, the pound still looks very vulnerable to further falls given the litany of issues that we foresee in the 2nd half of the year.

This week is a quiet one for UK data with GBP still likely to take its cues from wider investment sentiment.

Euro

The single currency is still surfing the wave of stronger business sentiment from Friday morning’s run of better than expected PMI numbers. While the numbers were far from showing an entrenched v-shaped recovery, they were a lot better than what is being seen in Asia or the US and hence the euro’s outperformance.

Of course, below the surface concerns around increases in joblessness and the subsequent scarring of a labour force must be remembered. Recovery is a long road, it is just that the Eurozone has got out of the blocks faster than most.

While most of the impulse for a higher EURUSD is coming from a weaker USD, today’s IFO number from Germany has the power to push the pair close to our 1.18 target.

US Dollar

Overnight optimism in China has pushed the dollar ever lower this morning with the wider greenback at its lowest level on a trade weighted basis for 17 months. While we may be seeing good news outside of the US, confirmation that 62,000 new cases of Covid-19 were diagnosed in the States on Sunday alone will not be helping the greenback. That is alongside electoral risks, heightened tensions with China and expectations of further Fed easing.

Wider market dynamics – how investors are starting to position themselves – suggest that there is more to come from this dollar weakness with investors adding to positions to profit from yen, euro, Canadian dollar, Swiss franc and sterling gains against the USD.

It’s a busy week for the USD with a Fed meeting on Wednesday and inflation data on Friday. For now, it doesn’t seem like anything apart from a Federal Reserve rate hike would help the USD higher.

Elsewhere

AUD bulls have had a good few months with the currency pressing higher across the board as the country’s handling of Covid-19 and the recovery in Chinese supply chains has helped. Risks to that move higher come early on Wednesday morning from the latest run of inflation data that could show a need for a weaker currency.

Have a great day and take care.

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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.