10/07 – As deaths mount, the dollar strengthens

GBP: Brexit news due at lunch

EUR: Optimism still there

USD: Florida, California and Texas all see record deaths

Sterling

As expected, sterling is finding the going a little tougher up at current levels against the USD. To be fair, a little bit of consolidation isn’t the worst thing in the world; it allows the optimists to reload and attempt a further push higher in the coming days.

Today may not be the day with the latest round of Brexit trade talks coming to an end. Hints that the UK is happy with a no-deal were greeted optimistically by the pound earlier this week as some hoped it would focus minds into getting a trade deal. That’s fine, although those mental gymnastics will eventually fail and the UK’s comfort with leaving the EU without a trade deal will be treated negatively by currency markets.

We should hear from both the UK and EU negotiating teams around lunchtime.

As we have noted in the past, it makes sense to watch out for sterling on Mondays and Fridays moving forward. Negotiations between the UK and EU end on Fridays and so there will always be headline risk from how the previous week’s talks have evolved. Likewise, politicians tend to use the Sunday papers to go on manoeuvres to throw up test balloons on policy or opposition to decisions and therefore Monday trade can be volatile.

Euro

The single currency has followed the pound lower against the USD but not to the same extent, showing a slight semblance of resilience in the euro. European equity markets haven’t declined as much their Chinese counterparts either and this relative optimism may be enough to restart a period of single currency outperformance.

US Dollar

Record Covid-19 deaths in Florida, California and Texas are leading the news headlines this morning and hence we are seeing a slight pick up in risk aversion, driving the USD higher across the board.

The global risk appetite was also knocked slightly by two Chinese investment funds noting that they will start to cut their holdings of stocks, a fairly overt signal that they believe the rally has gone far enough. The fact that these companies are backed by the state mean that this is not simply a company calling time on a rally but the government trying to take the steam out of things.

Once again, the data calendar is pretty quiet globally and so we would expect FX to follow the equity market reaction to the latest Covid-19 news.

Elsewhere

Anytime Covid-19 infections rates lead the news bulletin, the AUD will come into focus. The reasons are twofold; it is heavily correlated with risk markets and the recent shutdowns in the state of Victoria has got investors nervous. As we open up the AUD is down 0.5% on the session.

Have a great day, a better weekend and remember to stay safe.

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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.