GBP holds firm as equities continue to recover – key trends in the FX markets to start the week

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.

Strong finish

At the start of last week, GBP was initially pressured by concerns related to the UK-EU trade talks and falls in equity market. However, as stock markets shrugged off the spectre of a second wave of Covid-19 infections, so USD demand waned, and the pound ended the week near the top of its weekly ranges.

End flow boost

The pound was boosted by quarter end flows which, while not excessive, caught investors the wrong side and sparked some short covering which was supportive through to the end of the week.

Brexit progress

Positive murmurs from the UK-EU talks, which finished earlier than expected, also helped the pound, amid reports that the two sides had made progress with talks coalescing around a broad ‘landing zone’. Negotiations are set to continue in London this week.

Pound gains against the dollar

After opening around USD 1.2380 and EUR 1.10, the pound dipped to 1.2260 and 1.0905 before recovering as high as 1.2528 and 1.1105 and ending the week near those highs.

It has held most of the gains against the USD as the new week starts today (Monday 6 July), but has dipped back towards the mid 1-.10s against the EUR. The DXY peaked at 97.80 but has since dipped back below the 97 level as risk sentiment improved.

Positive data

Economic data was also generally better than expected, as economies recovered from lockdown lows. Thursday’s US employment report was the highlight of the week, showing the US creating 4.8 million jobs in June, beating market expectations by over 50%.

5-year high for China

PMIs (Purchasing Managers Index) were also upbeat and helped the equity market recoveries. China’s main benchmark hit a 5-year high today (6 July) on rumours of further monetary easing and state support. Stock indices are also opening the week strongly.

Steady week for oil

Oil had a steady week, gaining from around USD 38pb back above 40 and consolidating these gains this morning.

Gold solidifies

Gold fluctuated early in the week, hitting a high of USD1,789 an ounce – its best level since late 2012 – before slipping back as its safe-haven status was undermined. It held in the 1,770-80 range due to its wealth preservation qualities.

Bitcoin was subdued last week, holding in the 9,000-9,300 range.

The week ahead: keep your eye on local lockdowns

Looking forward to the week ahead, UK-EU trade talks will once again be front and centre for Sterling traders, with hopes that an outline for the future trade arrangement is getting closer, albeit with concessions still needed from both sides.

Today’s US ISM Non-Manufacturing PMI release – held over from last week due to the Independence Day holiday on Friday 3 July – is, aside from the weekly US jobs data, probably the week’s highlight on the data front.

There are also the Bank of England Monetary Policy Committee hearings in front of the Treasury Select Committee, which could garner some headlines.

With local lockdowns being put in place across the globe, markets will also have to maintain a focus on the pandemic and the assumption that the worst is behind us could come under scrutiny if infection rates show sign of a wider resurgence.