14/08/2020

Increased hopes of Brexit trade deal boost Sterling


GBP

Late week trading saw Sterling strengthen against a basket of currencies, particularly the US Dollar. Positive movement was driven by a struggling dollar and increased hopes of a post-Brexit trade deal before a transition period ends this year. Irish Prime Minister Micheál Martin said yesterday, he believes there is a “landing zone” to reach a post-Brexit trade deal between the United Kingdom and the European Union.

Currency markets largely ignored weak data this week showing the British economy was among the worst-performing nations in Q2 with analysts expecting a recovery in the coming months. Britain’s economy shrank by a record 20.4% in the second quarter, substantially worse than the euro zone (12.1%) or United States (9.5%), data this week showed. Many forecasts had expected a decline of around 20% which goes some way to explain why this didn’t come as much of a surprise and why we didn’t see major weakness from GBP after the data release.

USD

The dollar fell yesterday against most of its G10 counterparts, weighed down by the lack of progress in Congress about additional US stimulus to help cope with the coronavirus pandemic. Funding for the US Postal Service and to bolster election infrastructure became a major sticking point in talks on coronavirus relief, as President Donald Trump vowed to block any money to facilitate mail-in voting.

Earlier this week, Trump accused congressional Democrats of not wanting to negotiate over a US coronavirus aid package as Republican and Democratic negotiators blamed each other for a five-day lapse in talks over relief legislation.

Key announcements

9.00 – EU – Q2 GDP data release. Expected to be -15% from the same reading the previous quarter
12.30 – US – Retail sales for July. Expected to fall to 1.9% from 7.5% previous
14.00 – US – Michigan consumer sentiment index. Expected to drop slightly to 72 from 72.5 previous


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