IFX Market Report: Wednesday 11th August 2021

GBPEUR was able to trade at its highest levels since February 2020 yesterday as Sterling made an impressive advance against the single currency. As the latest German ZEW Economic Sentiment reading warns of “increasing risks to the German economy”, GBPEUR was able to reach 1.1834 on the day. Yesterday’s ZEW economic expectations for Germany fell dramatically from 63.3 t0 40.4 with a warning of increasing risks from a “possible fourth COVID wave from autumn or a slowdown in growth from China”. This was the ZEW’s third successive decline and its lowest levels since November last year. Adding to the Euro’s difficulties, the Eurozone ZEW number also fell sharply from 61.2 to 40.4 in August.

While Sterling has been able to make gains against the Euro, sadly for the Pound this has not been the case against the Greenback. Cable traded relatively flat on Tuesday and finished just 2 pips above where it opened the day. Many argue the case that “central bank policy is a key driver of currency valuations in the current market environment, with those central banks hiking rates ahead of peers likely to see their currencies appreciate”. Thus, if this is the case, markets can expect a “weakening of the pound in the run-up to the Fed’s tapering, but smaller than the euro’s, against which Sterling should... strengthen as a result”.

As already noted, GBPUSD showed little volatility yesterday. Cable opened at 1.3845 and closed at 1.3847.

While GBPEUR started the day on the cusp of 1.18 at 1.1797, the pair was able to climb in the session, finally finishing the day at 1.1815.

EURUSD made a loss on Tuesday. The pair started the session at 1.1736 and closed the day off at 1.1719.

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