26 August 2020
The major currencies have been largely rangebound so far this week, with a lack of news during the typically quiet August holiday period providing little to write home about.Risk currencies have edged slightly higher - both the euro and sterling are trading modestly higher so far for the week, although the moves have been limited to less than half a percent. The US and China have both confirmed their commitment to honouring their ‘phase 1’ trade agreement, which was signed by both parties back in January. China yesterday signalled that progress was being made towards a full agreement, which has calmed market nerves somewhat. It is interesting to note that we have not yet seen any meaningful reaction in the euro to the contrasting virus news we are now seeing across both sides of the Atlantic. New US virus cases continue to ease and are now at their lowest since the third week of June. By contrast, new daily cases in Europe’s big four nations have risen to their highest level since mid-April in the past few days, raising concerns over the possibility of a second wave of virus infection. Figure 1: New Daily COVID-19 Cases [Big 4 Euro Area] (March ‘20 - August ‘20)
Source: Refinitiv Datastream Date: 26/08/2020It is perhaps the fact that this spike in cases has been almost entirely confined within Spain that we are seeing such little reaction in the common currency, which continues to receive some support above the 1.18 level. This will, however, certainly provide something to keep an eye on.Pound brushes aside soft August sales figuresAs for sterling, the pound was one of the better performing major currencies yesterday, edging back above the 1.315 level versus the US dollar this morning.A lack of major market moving news has been good news for the pound, with the aforementioned move higher in the currency largely driven by the general improvements that we are seeing in investor sentiment. That being said, headlines that Oxford University could be ready to hand over data to the regulators from its COVID-19 vaccine trial in the autumn has helped in this regard, raising hopes that a vaccine could be available before the end of the year. This has helped lift the pound higher, even after yesterday’s disappointing retail sales data from the Confederation of British Industry that revealed jobs in the sector were slashed at their fastest pace since 2009.The next big test for risk appetite will come on Thursday, with central bank heads set to meet virtually at the annual Jackson Hole symposium. In the meantime, we are looking ahead to this afternoon’s US durable goods orders, which may give us a decent indication as to how the US economy was holding up in the month of July.
Source: Refinitiv Datastream Date: 26/08/2020It is perhaps the fact that this spike in cases has been almost entirely confined within Spain that we are seeing such little reaction in the common currency, which continues to receive some support above the 1.18 level. This will, however, certainly provide something to keep an eye on.Pound brushes aside soft August sales figuresAs for sterling, the pound was one of the better performing major currencies yesterday, edging back above the 1.315 level versus the US dollar this morning.A lack of major market moving news has been good news for the pound, with the aforementioned move higher in the currency largely driven by the general improvements that we are seeing in investor sentiment. That being said, headlines that Oxford University could be ready to hand over data to the regulators from its COVID-19 vaccine trial in the autumn has helped in this regard, raising hopes that a vaccine could be available before the end of the year. This has helped lift the pound higher, even after yesterday’s disappointing retail sales data from the Confederation of British Industry that revealed jobs in the sector were slashed at their fastest pace since 2009.The next big test for risk appetite will come on Thursday, with central bank heads set to meet virtually at the annual Jackson Hole symposium. In the meantime, we are looking ahead to this afternoon’s US durable goods orders, which may give us a decent indication as to how the US economy was holding up in the month of July.
