28/07 – Congressional fights not helping USD

GBP: Hoping for clarity

EUR: Still pushing onwards

USD: Congress could let the USD down further

Sterling

GBPUSD continues to grind higher, peaking above the 1.29 level for the first time since March before retreating. Elsewhere the pound is more mixed, a testament to the huge uncertainty that surrounds the next few months for sterling. Until we are afforded some clarity on Brexit or the way the economy will look once the furlough scheme has ended then GBP carries simply too much risk for most investors to be comfortable holding on to it longer term.

For now we wait, and trade on the movements of other currencies or assets, hoping that Autumn can eliminate some of the ambiguity.

Euro

Investors seem to have taken a little bit of profit off the table this morning on plays that benefit from a higher euro. This could be for a number of reasons although the majority of analysts are tying the sell-off to moves lower in gold and silver markets overnight. The single currency and these precious metals are not normally correlated but have been of late given the rapid decline of the USD.

The data calendar is quiet in Europe and we would suspect that euro bulls will be back to pushing higher soon with a EURUSD target of 1.18 very much in sight.

US Dollar

Most signs in the world of currency continue to point to a weaker USD with noises coming from Congress the loudest and most concerning.

Currently, Americans who have lost work due to the virus and subsequent lockdowns are entitled to $600 a week of support however that benefit is set to expire this Thursday. Plans put forward by the Democrats want to keep the same level of stimulus plus include some people who were not eligible while the latest plan from the Republicans would see support cut to $200 a week without any changes in eligibility.

Without a deal however, those Americans will receive nothing and the onus for stimulating the US economy will fall on the Federal Reserve who may have to employ tricksier methods of support, all of which are likely to keep the wider greenback on the back foot.

Thursday is a crucial day for the USD and in the meantime, we expect any rallies for the dollar to be sold into.

Elsewhere

Shifts lower in gold and silver prices have had an outsized influence on commodity currencies overnight with AUD, NZD, ZAR and CAD all a little weaker. Overall dollar weakness however should be enough to limit these declines.

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.