BFX Weekly Market Report: A big week ahead as markets continue to try to look on the bright side

Mon 13 Jul 2020
Posted by: William Barns-Graham
Trade News

currency update

Every week our partners at Bibby FX bring you the latest moves and news in currency rates around the world.

Here you can quickly read seven key stories affecting foreign exchange in the last week and a look forward to the next five days.

Pound rallies despite Brexit

The £ shrugged off Brexit concerns last week, rallying against both the $ and the € as equity markets stayed firm, even as Covid-19 infections rose across the globe. Economic data – notably from the US and Chinese PMI’s - buoyed investor sentiment.

Softening Brexit rhetoric

Little of note came from the UK-EU trade talks, though the reports that did emerge seemed to indicate a slight softening of the rhetoric and some centre ground being sought.

Strong end to the week

Sterling solidified through the week. It opened at lows of $ 1.2470 and traded as high as 1.2670, before slipping back slightly. Fresh buyers on Friday meant it closed the week near the highs for the week.  Against the € it also performed well, hitting a low of around 1.1040 on Monday before climbing to within touching distance of 1.1200.

New data could lead to volatility

The UK month-on-month GDP release is due on Tuesday, before an inflation report on Wednesday, employment report on Thursday, and the Retail Sales data for June on Friday. These data releases could lead to heightened volatility in the week ahead.

US corporate earnings

US Q2 corporate earnings results are released this week, which could impact stock markets, and consequently the pound.

EU Council to meet

The German ZEW sentiment survey is released Tuesday, and the ECB will also meet this week to agree EU monetary policy. However, Friday’s EU Council meeting to discuss the funding for the EU Recovery Fund could be the main mover for €. Any delay in its implementation or watering down of the scale of the proposals could see the € coming under pressure.

Oil fights back

Equity markets have started the week on the front foot, and oil – which slid from around USD 41pb to as low as 38.60 on increased inventories – has fought back to open the week back above the 40-dollar level.

Good week for gold

Gold also had a good week, climbing from around 1770 through the 1800 barrier to a high of 1817.50 – its best level against the $ since September 2011. It opened the week still above 1800. Bitcoin also ended the week with a slight increase to around 9250, though price action remains surprisingly subdued for what is an extremely volatile asset.

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As mentioned above, with a significant amount of economic data and US corporate earnings to come, the ongoing Brexit talks and the key EU Council meeting on Friday, FX markets could see volatility increase this week.

Sterling seems relatively steady at the $ 1.25 level, as traders weigh up the potential Brexit outcomes and hope for a stabilisation of the Covid-19 pandemic. Since the beginning of June, we have seen a broad 1.22-1.28 range.

Recent economic data has boosted equity markets as economic activity has increased post lockdown and, so far, the global rise in infections – notably in southern US but also seen in India, Brazil and South Africa – has been largely overlooked by investors, reducing demand for safe-haven dollars.

A sustained break above € 1.12 for the pound could open up a move towards the 1.15 level, though this would probably need the EU Council to fail to find agreement on how the bloc’s recovery programme is to be funded.

The 1.28 level to the $ is also likely to be a hard nut to crack, but if achieved would likely lead to a test of the 1.30 level.

Economic data highlight

Today              

  • BOE Governor Bailey speaks

Tuesday         

  • UK Monthly GDP data
  • Industrial and Manufacturing Production and Trade balance
  • German CPI and ZEW sentiment survey
  • US CPI and Federal Budget balance

Wednesday   

  • UK Inflation report
  • BOE’s Tenreyro speaks
  • US NY Empire Manufacturing Index, Industrial and Manufacturing production

Thursday       

  • Chinese GDP and Industrial production
  • UK Employment report and BOE’s Bailey and Haldane speak
  • ECB monetary policy announcement
  • US jobless claims, Philly Fed and Retail Sales

Friday              

  • UK Retail sales and BOE’s Bailey speaks
  • Eurozone CPI and EU Council Meeting
  • US Building permits and Michigan Consumer sentiment