28/07/2020

Sterling edges higher against weak US Dollar


GBP

The pound lacked any key drivers on its own merits at the start of this week but was buoyed against the struggling US Dollar as uncertainty over Brexit talks and Britain’s economic prospects kept investors subdued on sterling.

Talks between the UK and the European Union stalled last week over the chances of securing a free trade agreement, with Brussels deeming it unlikely. However the UK is holding onto hope one could be reached in September.

Yesterday, EU’s chief Brexit negotiator Michel Barnier surprisingly expressed confidence at a closed-door meeting with national envoys to the bloc that a new deal with Britain was possible. Barnier’s comments were in complete contrast to the downbeat assessment he delivered last week.

Until some type of agreement or progress is made with Brexit talks, caution remains for sterling and for this reason any major recovery gains against the single currency seem difficult in the short term.

USD

The dollar tumbled to an almost two-year low against the euro this week as concerns about the growing number of coronavirus cases in the United States weighs heavy especially ahead of the Federal Reserve’s meeting this week when it is expected to confirm its intention to leave interest rates at rock bottom. Early predictions do not expect the US economic recovery to be anywhere near as smooth as what is unfolding in Europe. The Fed is expected to reiterate that it will keep rates near zero for the next few years when it wraps up its two-day policy meeting on Wednesday.

Another concern for the dollar is the November election which should add a huge level of political uncertainty into the US Dollar. A Democrat win would bring expectations of improved relations with China with increased regulation and taxation, all of which are deemed to be dollar negative.

Key announcements

None


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