Despite hitting multi-month lows last week, Sterling has been one of the best performing G10’s at the start of this week. As Cable looks to challenge the 1.3900 handle, the Pound’s recent boost comes as the UK government embraces the notion of learning to live with COVID-19. One economist notes that “the main trigger for Pound outperformance at the start of this week has been the announcement from UK Prime Minister Boris Johnson yesterday that the government plans to proceed with the final stage of easing COVID-19 restrictions on 19th July following a four-week delay”. Thus, markets have become confident in the UK economy making a robust rebound, leading to increasing faith in the Pound.
While this bold approach from Boris Johnson is welcomed by markets, there is still the possibility of devastating setbacks occurring. The main potential problem will be if the governments calculations are inaccurate and pressures on the NHS proves to be more challenging than forecasted. If this issue does arise, it is more than likely the government will be forced into imposing another lockdown in England. Another potential set back will be if there is a sharp rise in COVID-19 cases while maintaining the legal requirement to self-isolate. This will likely cause heightened disruption as people are more likely to come into contact with more cases. If the UK does indeed experience a setback, it will drastically hinder the Pound’s performance.
Pound strength, combined with a renewed selling interest of the US Dollar is pushing GBPUSD closer to 1.3900 this morning. Cable opened on Tuesday trading at 1.3820 and was able to close at 1.3840. As markets become more hesitant about tomorrow’s FOMC minutes, Cable has been able to make impressive gains, trading securely above the 1.3860 mark this morning.
GBPEUR was able to make subtle gains yesterday. The pair started the session at 1.1659 and was able to finish at 1.1667.
EURUSD also gained some upside on Tuesday. The pair started the day at 1.1853 and closed at 1.1862.
