Pound Soars to Multi-Month Highs, Investors Grow Increasingly Bearish Towards the US Dollar

GBP/EUR Exchange Rate: Pound Slips from Highs Ahead of BoE Decision

The Pound to Euro (GBP/EUR) exchange rate roared higher at the end of last week, with the pairing touching a three-week high.

In the absence of any negative Brexit developments Sterling was well positioned to take advantage of some weakness in the Euro.

However this uptrend in the Pound failed to carry through into this week’s session, with the GBP/EUR exchange rate slipping back, amidst concerns of a UK coronavirus resurgence and fears that the UK’s post-Brexit trade opportunities could be damaged by the recent souring of international relations.

GBP investors also appear reluctant to make any bullish bets ahead of the Bank of England’s (BoE) impending rate decision.

The BoE is widely expected to leave its monetary policy untouched this month as policymakers note the recent improvement in UK economic data.

However, the bank could send the Pound lower if it remains cautious in its outlook for the remainder of 2020 or makes any mention of the possibility of deploying unconventional monetary policy measures.

GBP/USD Exchange Rate: Pound Soars to Four-Month High

The GBP/USD exchange rate cleared a key level of resistance last week as the pairing was catapulted to its best levels since the start of the coronavirus crisis.

This was more a case of USD weakness than a story of GBP strength however, with the Pound catching a bid tone amidst the broad weakness of its peers.

As a result, the GBP/USD closed out July with its best monthly performance in over a decade.

So far this week the GBP/USD exchange rate has seen some volatility but has largely been able to hold on its recent gains, although this could be short lived depending on the tone struck by the BoE on Thursday.

Also on the radar for GBP investors will be the UK’s latest GDP figures, with next week’s release likely to weigh heavily on the Pound amidst forecasts of a 20% contraction in economic growth in the second quarter.

USD/GBP Exchange Rate: US Dollar Sell-Off Intensifies

The USD/GBP exchange rate nosedived over the past week as the USD selling bias remained firmly entrenched.

This bearish tone towards the US Dollar prevailed amid concerns over the alarming rise in US coronavirus infections, which was highlighted by the Federal Reserve following its latest policy meeting.

Also denting the ‘Greenback’ in the tail end of last week’s session was the latest US GDP estimate, which reported the US economy shrank a record 32.9% on an annualised basis in the second quarter.

While the US Dollar was able to claw back some of these losses in response to easing risk appetite, it has so far struggled to mount a sustain recovery amidst delays to the next round of US fiscal stimulus.

Still to come this week is the latest US payroll report. Economists are forecasting unemployment will have continued to fall last month, but will a smaller increase in payroll numbers raise concerns about the pace of employment growth?

EUR/USD Exchange Rate: Euro Catapulted to Two-Year High

The EUR/USD exchange rate has skyrocketed to its best levels since July 2018 over the past week as the pairing benefited from the recent plunge in the US Dollar.

However, it hasn’t all been plain sailing for the Euro, with the single currency facing some pressure at the end of last week with the release of the latest German and Eurozone GDP figures.

Both reported a record slump in growth in the second quarter, with a larger-than-expected contraction in Germany plunging the Eurozone’s largest economy into a deeper recession than previously feared.

So far this week the EUR/USD exchange rate is showing signs of making another move upwards on the back of some positive retail sales and PMI figures.

Whether the Euro is able to maintain this upward trajectory will depend on Germany’s upcoming industrial data releases, with another robust expansion in factory orders and industrial production likely to help extend the single currency’s bullish run.

Matthew Andrews

Contact Matthew Andrews