IFX Market Report: Wednesday 25th August 2021

After a somewhat successful rally, Sterling is once again on the retreat. The UK recorded 30,838 new COVID-19 cases and 174 COVID-19-related deaths on Tuesday. According to the Office of National Statistics (ONS), weekly UK COVID-19 deaths have now reached their highest levels since March. Rising levels of new cases, and now deaths, will certainly prove worrying for investors. If the situation continues to deteriorate, or the government are forced to impose another a lockdown, it is almost without doubt the Pound will depreciate and the UK economy will suffer drastically.

Despite facing tough trading conditions, Sterling’s losses against the US Dollar have been minor in comparison to other currencies. An increase in risk-appetite due to the rampant rise of the COVID-19 Delta variant in the US and troubles in Afghanistan has caused a “slide in the safe-haven US Dollar”. Also adding to the Dollars troubles, “speculation that the Federal Reserve may delay tapering its monetary stimulus” is forcing a further sell-off in the Greenback. With the Jackson Hole Symposium starting this week, all eyes will be on Fed Chair Jerome Powell and the actions he and his committee decide to take. Given there is no first-tier UK data due this week “to disturb traders focused on the Jackson Hole gathering”, thus GBPUSD’s performance will be almost entirely dictated by Dollar activity.

The decreasing odds of the Fed tapering has boosted also equities this week, which in turn has caused the US Dollar Index (DXY) drop off. The main rival to the DXY is the Euro, thus the Single Currency has strengthened as a result. The Euro was able to make an impressive advance against both Sterling and the Greenback in the Tuesday session.

GBPUSD started the session at 1.3743 and in spite of some jitters, managed to close at a respectable 1.3731.

GBPEUR in contrast made a significant loss on Tuesday. The pair opened at 1.1703 and fell all the way to 1.1675, where it finished the session.

EURUSD made solid gains on Tuesday. The pair started at 1.1742 and closed the day over 20 pips above at 1.1769.

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