Pound (GBP) Climbs near Five-Month High Against US Dollar (USD)
Without any catalysts to drive movement of its own yesterday, the Pound (GBP) held steady and benefited from weakness in the US Dollar (USD), firming at $1.28.
Ongoing Brexit uncertainty kept pressure on Sterling through most of yesterday’s session. However, reports emerged in the afternoon that the EU’s chief negotiator, Michel Barnier, expressed confidence that a deal with Britain is possible.
This renewed Brexit optimism could be offset today as fears grow over a second wave of coronavirus hitting Europe and the UK. The UK introduced travel quarantine rules on Spain while reports emerged that Boris Johnson warned businesses to expect another wave of coronavirus to hit the UK in the autumn.
Euro (EUR) Rally Continues to 20-Month High
The Euro (EUR) continued making gains yesterday, with the EUR/USD exchange rate hitting its highest level in nearly two years.
Optimism from the EU recovery fund agreed last week and a weak US Dollar supported Euro exchange rates. Meanwhile, German data from the Ifo business climate indicator jumped in July suggesting the German economy is recovering well.
Looking ahead, the Eurozone lacks economic data releases today. Instead, Euro exchange rates may remain buoyed by optimism and respond to threats of a second coronavirus wave and US Dollar movement.
US Dollar (USD) Plummets to a Near Two-Year Low
US Dollar (USD) exchange rates continued to slide yesterday as US-China tensions, rising coronavirus cases and a poor economic outlook caused the ‘Greenback’ to lose some of its safe-haven status.
In the latest US-China move, US diplomatic staff left their consulate in Chengdu on China’s orders in retaliation to a similar move demanded by the US in Houston. This prevented any gains on a better-than-expected durable goods orders.
Some optimism may return to US Dollar exchange rates ahead of the Federal Reserve interest rate decision on Wednesday and the US fiscal stimulus package passing through the Senate and Congress.
However, the US Dollar is likely to stay under pressure from rising tensions with China, increasing cases of coronavirus, and stalemate in congress on the latest US stimulus package.
Canadian Dollar (CAD) Rangebound as Oil Prices Steady
The Canadian Dollar (CAD) was steady yesterday as oil prices held but growing geopolitical tensions and rising coronavirus cases weighed on demand for the oil-linked ‘Loonie’.
Looking ahead, optimism over oil demand could continue to be dampened by delays in the US passing its latest stimulus package due to Republican and Democrat disagreement.
Australian Dollar (AUD) Gains on RBA Kent’s Comments
The Australian Dollar (AUD) made gains against the US Dollar (USD) yesterday but limited against other currencies.
The China-proxy ‘Aussie’ also gained on USD weakness, while Reserve Bank of Australia (RBA) Assistant Governor Chris Kent gave Australian Dollar exchange rates a boost by ruling out negative interest rates.
Looking ahead, investors await second quarter inflation rate data forecast to show a year-on-year drop to -0.4%. In the meantime, tensions between the US and China and continued lockdown will drive the Australian Dollar’s movement.
New Zealand Dollar (NZD) Gains despite Deteriorating US-China Relations
The New Zealand Dollar (NZD) also made gains against the struggling US Dollar yesterday.
The ‘Kiwi’ will be sensitive to shifts in risk appetite today, which may be driven by hopes of US fiscal stimulus and the Federal Reserve’s interest rate decision.