GBP

Sterling continued its decline against the euro and dollar on Tuesday as market sentiment remained risk-off. This follows global Covid concerns that seem to be dominating investor sentiment. The US has now surpassed 200,000 new daily infections and New Zealand re-imposed lockdown restrictions following their first case for six months.

Yesterday’s employment data from the Office for National Statistics was a welcome respite for the pound. However, the real test will come when the furlough scheme ends. If the jobs market survives that, the data may force the Bank of England to tighten monetary policy which will be positve for sterling.

USD

The dollar rallied against sterling yesterday and traded close to nine month highs against the euro as investor demand for safe haven currencies increased.

However, it’s not all good news. Yesterday’s July US Retail Sales data release showed a contraction of 1.1%, way below forecasts of a 0.3% contraction. The disappointing data follows last week’s mixed inflation data which showed signs inflation had already peaked and may be temporary, just as the Federal Reserve forecast.

EUR

The euro took advantage of the pound’s troubles yesterday, gaining as the GDP estimates for quarter two showed the Eurozone recovering from a double dip recession.

According to Eurostat’s latest estimates, Q2 GDP is expected to show the EU economy rebounding by 2% from a contraction of 0.6% the previous quarter.

Key announcements

07:00 – GBP – Consumer Price Index (YoY) (Jul) 2% down from 2.2% forecasts

19:00 – USD – FOMC Minutes