Global Themes

  •  Sterling searching for GDP to support
  •  Dollar rampage crushes Euro
  •  Euro falters on Turkish woes

GBP

Sterling searching for GDP to support 

 Market participants have experienced a taste of what could be a very sour future for the British Pound should the UK leave the European Union (EU) without a trade deal. The heavy selling pressure on Sterling has not subsided and it looks set for its worst week against the US Dollar since early May. GBP/USD has slumped over 2.5% in August alone, with no respite, stamping new monthly lows on a daily basis and approaching a 12-month trough of $1.2770 this morning. GBP/EUR rebounded off 9-month lows to reclaim the €1.11 handle yesterday and remains firmly atop this key level this morning thanks to broad Euro weakness.

  Neither the UK nor the EU want a disorderly Brexit, and many believe it won’t happen, but many also believed that vote remain would prevail back on referendum day in June 2016. The surprise vote to leave has left Sterling suffering a rollercoaster ride of a journey from $1.50 to $1.32 against the US Dollar on the referendum result day alone. GBP/USD collapsed to $1.1450 in the flash crash of October 2016 and charged to $1.4376 in April this year. Now GBP/USD sits firmly anchored back below the key $1.30 level and the pound risks slipping even further if today’s important economic data fails to support.

  • At 9:30am today, an estimate of UK Q2 GDP data will be unveiled, and consensus forecast is to see an uplift compared to Q1 of 0.4% from 0.2% q/q and 1.3% from 1.2% y/y. If the data meets or beats forecasts, this could provide some short-term relief for the pound. However, industrial and manufacturing output data for June will also be released at the same time and could further punish Sterling should the data come in line with the bleak forecasts.

USD

Dollar rampage crushes Euro  

The US Dollar index, measuring the strength of the dollar against a basket of currencies, is flirting with 13-month peaks this morning, bulldozing its way through the 96 handle for the first time since July 2017. The $1.15 floor for EUR/USD has finally cracked and has sent the pair tumbling swiftly through key support levels to touch $1.1433. The pair is down circa 2% this month already and looks poised to test even lower with $1.14 the next barrier to break. The dollar has enjoyed an extremely positive week so far, benefiting from the escalating trade tensions and geo-political concerns as reported throughout the week. In addition, the dollar strengthened after Federal Reserve member Charles Evans, usually classed as a “dove”, surprised markets with unusually hawkish comments last night, confirming the need to increase interest rates twice more this year.

Economic data yesterday also revealed initial jobless claims are at one of the lowest levels since the 1960s, reinforcing the strong labour market conditions in the US and the need to raise rates. Although producer price index cooled from 3.4% to 3.3% y/y in July, consumer price index (CPI) is expected to rise to 3% y/y for the first time since September 2011. The US CPI figure will be released at 1:30pm and could stimulate further dollar demand.

 Meanwhile in geo-politics, the Turkish Lira continues to record all-time lows against most major currencies amid diplomatic tensions with the US, which have manifested since two Turkish ministers were sanctioned this week. The Russian Rouble also continues to suffer due to fresh sanctions imposed by the US on Moscow. The rouble is down 4% since Tuesday.

EUR

Euro falters on Turkish woes 

The European Central Bank (ECB) has expressed concerns of how some larger European banks are currently exposed to the weakening Turkish Lira. Traders have been taking a risk-off approach to the situation in the EU and have opted for standard safe-haven products such as the US Dollar and Japanese Yen, both of which have strengthened overnight. The Euro is not directly correlated with the Lira, however, there is a degree of contagion which needs to be dealt with. The Lira is currently trading at record lows ahead of Turkish President Recep Tayyip Erdoğan’s speech later today and before Finance Minister Berat Albayrak unveils the latest plan for Turkey’s suffering economy.

GBP/EUR has risen as a result of the Euro weakening, moving away from the €1.1070 area where the pair fell to yesterday. This morning, Sterling trades around the €1.11 region against the Euro, failing to recover the €1.12 level as traders appear to be seeing any spike in Sterling as an opportunity to sell the pound again. Lack of any economic data from the Eurozone today could see the Euro driven by important economic releases from the UK and US.


*The rates displayed by our free currency converter are neither "buy" nor "sell" rates, but interbank rates, the wholesale exchange rates between banks. Interbank rates don’t include the spreads, handling fees, and other charges that may be assessed by foreign exchange providers. Please note that, as such, these rates are provided for indicative purposes only. Prior to booking a transaction, Western Union Business Solutions will advise you of the actual rate then available for a particular currency transaction.

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