At 7:00 this morning, we had the UK GDP release. With a contraction fully priced in, markets were expecting figures deep into negative territory. For Q2, the UK GDP was released at -20.4%, better than the forecasted -21.2%. Also beating expectations was the YoY reading – coming out at -16.8%, as opposed to the forecasted -18.5%. Construction Output, Industrial Production and Manufacturing Production also all came out better than expected. Although these ‘positive’ readings will be welcomed and indicate that the UK is on the right track to recovery, they have done little to stimulate the pound.
GBPEUR appears to be comfortable above 1.11, maintaining this range now for the last few days. The pair opened yesterday at 1.1138, before finishing the session at 1.1115.
After seeing some upside at the very beginning of the week, cable now seems to be stuck in the 1.30 range. Despite spending a period of the trading session above the 1.31 handle yesterday, GBPUSD opened at 1.3077, closing off the day only 2 pips lower at 1.3075.
Today will prove testing for cable as, after a recent run of abysmal form, the dollar looks to finally be on the rise. Despite growing economic concerns, the yield on 10-year US debt posted its most substantial gain in two months. The dollar index has depreciated 9% from the three-year high it achieved in March, losing 4% alone in the month of June. Thus, posing the question whether the support the dollar has found in August amounts to a ‘bounce’ or a ‘pause’ in its decline.
Given the greenback’s newly found vigour, yesterday EURUSD was unable to manoeuvre back into the 1.18’s. The pair opened the session at 1.1740, only to close slightly higher at 1.1763.
In the race for the COVID-19 vaccine, yesterday we had our first major headline – President Vladimir Putin announced that Russia has successfully developed a vaccine for the virus. Despite Putin’s decision to skip the broad testing phase, he claims the vaccine to be effective, claiming his daughter received it. Unsurprisingly, shortly after Russia claimed to ‘win’ the race, Donald Trump made an announcement saying he has reached a deal with American pharma company Moderna for 100M vaccines. Worryingly, this comes before Moderna have completed the vaccine’s Phase 3 trial.
On the data front, at 10:00 today we Industrial Production from the Eurozone, expected to come in at -11.5%, a vast improvement from last months -20.9%. Then later in the afternoon, we have Inflation figures from the US, followed by some mid-tier releases and speeches from FED members Eric Rosengren, Robert Kaplan and Mary Daly.
