Rising Covid-19 infections curtail GBP gains – key trends in the FX markets this week

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Every week our partners at Bibby FX will 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.

Pound loses gains to dollar

The Pound (GBP) initially strengthened last week, but as the week progressed markets were unable to ignore the growing numbers of Covid-19 infections in southern US states. GBP lost its earlier gains to finish almost unchanged against the US Dollar (USD). The week’s range was 1.2320-1.2540, but it closed the week at the lower end.

Pound steady against the Euro

GBP maintained a range of 1.10-1.11 against the Euro (EUR), but again closed at the lower end. This was despite the European Central Bank offering EUR repos (repurchase agreements) to ensure no shortages in the financial markets. This had initially helped GBP edge towards the top end of the range.

Dollar saved by safe-haven status

The US Dollar Index (DXY) was also supported by the ECB offer, despite closing slightly below the week's opening levels. It had dipped from 97.70 to a low of 96.40 before the USD’s safe-haven status saw demand return and it closed the week at around 97.60.

Signs of manufacturing growth

Global PMIs, while obviously reflecting the impact of lockdowns, were generally encouraging. The UK Manufacturing index from IHS Markit even crept back above the growth/contraction level to 50.1, which helped the stock markets in the first half of the week.

However, increased Covid-19 infection rates soured sentiment leading to falls in major indices as the week progressed.

US economy contracts

US Q1 GDP contracted by 5%, in line with market expectations.

In a relatively quiet week for US data, other releases – notably the US New Home Sales and Durable Goods Orders – showed signs of a pick-up in economic activity, albeit from low lockdown levels

Oil rises and falls

Oil followed a similar pattern to currencies, rising in the first half of the week to a high of USD 41.60pb for WTI (West Texas Intermediate).

However, as wider markets pulled back on renewed pandemic fears, so did oil, which was also undermined by US Shale Producers coming back online causing the price rose above USD 40pb. It closed the week around the USD38 level.

Solid week for gold

Gold had a solid week, rallying from USD 1740 per ounce to a high of 1179, though it closed just off those highs at around 1770.

Week ahead

Looking ahead at the coming week, face-to-face Brexit negotiations begin again today.

Reports over the weekend that UK prime minister Boris Johnson told the Polish PM he is prepared to leave the EU with an Australia-style trade arrangement – effectively a no deal WTO-based exit – has seen the pound start the week under pressure and back below the EUR 1.10 level.

GBP is likely to react to any Brexit negotiation headlines as well as any Covid-19 related news.

There is also a focus on the US infection and R rates this week, with any further deterioration likely to undermine equities and possibly underpin the USD.