After a relatively positive meeting from the Bank of England yesterday, the pound was able to hit a fresh 5-month high against the dollar.
Opening post-policy meeting, GBPUSD started the day strong at 1.3156. As the morning progressed the pair managed to peak at 1.3186, only to close slightly below the open, at 1.3148. With a rate cut now fully priced out of the market following Andrew Baileys comments yesterday, cable now has the capacity to press on even further. It will likely be USD weakness that drives any upside for the pair, but with Non-Farm Payrolls (NFP) being released today, the continued stalemate in the senate concerning a stimulus package, and the disappointing recent form of the greenback, there is abundance of risk that could harm the dollar.
GBPEUR in contrast is still hovering around, yet unable to maintain itself above the 1.11 mark. The pair started the session trading at 1.1093 yesterday before closing off at 1.1089.
In spite of the dollar risk formerly mentioned, EURUSD had one of its first rangebound days in a while yesterday. Whilst the pair was able to gain 3.3% in the last 2 weeks of July, yesterday EURUSD opened at 1.1858 – only to close the session at 1.1857.
The Euro’s recent strength against the dollar has mainly be determined by COVID-19. As Europe has started to open its doors and show signs of an economic recovery, the US’ situation has been the opposite. However, fears of rising COVID-19 cases in Germany, France, Spain (and others) will cap any further gains in the short term. If infections spike in Europe it is more than likely we will see EURUSD fall considerably.
The main event today will be the monthly US NFP (13:30 GMT / 08:30 EST). Despite Donald Trump (via Twitter) boasting of ‘great job numbers’, the leading indicators thus far released have painted an entirely different picture. Given that both the ISM Manufacturing and Services recently posted a contraction, and Initial and Continuous Jobless Claims have risen, usually would suggest a poor NFP figure. Not only this, the resurgence of COVID-19 cases since mid-June in the US has likely hindered the labour effort. If the final reading is below the expected 1.5M increase, we could see the dollar depreciate.
Looking ahead to next week on the data front, we have a plethora of important data releases. Most notably GDP figures for both the UK and the Eurozone, Inflation from the US, and Employment Change from the UK.