Business Currency News: Pound Climbs to Three-Month High in Risk-On Trade, EUR Buoyed by ECB’s €600bn Stimulus Expansion

GBP/EUR Exchange Rate: Sterling Strengthens despite Brexit Uncertainty

The Pound to Euro (GBP/EUR) exchange rate ticked higher over the past week, striking its best levels since mid-May despite growing concerns over Brexit.

 

While Sterling rode a wave of market optimism in recent days, the lack of progress in the latest Brexit trade talks tempered gains as Michel Barnier accused the UK of ‘backtracking’ on some of its commitments.

 

Meanwhile, the focus through the latter half of this week will be on the publication of the UK’s latest GDP figures.

 

This may cast the Pound lower as economists predict that April’s release will report the UK economy shrank a startling 20% during the country’s first full month of lockdown.

 

GBP/USD Exchange Rate: Pound Increasingly Behaves as a Risk-Sensitive Currency

The GBP/USD exchange rate struck a new three-month high over the past week as the Pound’s growing sensitivity to market risk appetite has seen it carried higher amidst an upbeat market mood.

 

This comes as Sterling increasingly behaves in a manner more akin to a risk-sensitive currency, with Brexit uncertainty and the UK’s coronavirus outbreak making the currency a far riskier prospect for investors than it once was.

 

Looking ahead, the Pound could be given a boost early next week as the UK government pushes ahead with its plans to reopen non-essential shops from Monday.

 

However, GBP investors will also be keeping an eye on the UK’s upcoming jobs report, where a spike in unemployment in April could dampen the appeal of Sterling.

 

USD/GBP Exchange Rate: Risk-On Trade Limits Demand for the US Dollar

The USD/GBP exchange rate has fallen over the past week, with a broad improvement in market sentiment limiting demand for the safe-haven US Dollar as more countries take steps to reopen their economies and hopes grow for a sharp recovery in global growth.

 

However, the US Dollar managed to find some relief with the publication of the latest US payroll figures last Friday as USD investors were pleasantly surprised to see US unemployment slip in May, beating forecasts it would surge to almost 20%.

 

Still to come this week will be the Federal Reserve’s latest interest rate decision.

 

While no policy changes are expected from the Fed this month, the US central bank will be publishing its first economic forecasts of 2020, with expectations for minimal growth and ultra-low interest rates for the foreseeable future potentially denting the US Dollar.

 

EUR/USD Exchange Rate: Euro Soars Buoyed by ECB’s Stimulus Expansion

The EUR/USD exchange rate skyrocketed through the second half of last week as EUR investors cheered the European Central Bank’s (ECB) announcement of a major expansion to its stimulus programme.

 

The ECB announced it would top up its Pandemic Emergency Purchase Programme (PEPP) with an additional €600bn, allowing its bond purchases to run into 2021 and offer more support to Eurozone recovery efforts.

 

The Euro then extended these gains through the start of this week’s session after Tuesday’s GDP estimate revised Eurozone growth in the first quarter up from –3.8% to –3.6%.

 

Moving forward, the Euro is likely to remain well supported for the time being as more of Europe continues to reopen.

 

However, there is some potential for the single currency to stumble later this week with the publication of the Eurozone’s industrial production figures, which are expected to report a record slump in factory output in April.

Matthew Andrews

Contact Matthew Andrews


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