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GBP / USD updates 28-month lows

GBP / USD updates 28-month lows

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Jim Anderson - Public Relations

GBP / USD remains at the beginning of the new week under strong downward pressure, shifting 28-month lows to 1.2335. The pound is now one of the weakest currencies on Forex due to the heightened threat of chaotic Brexit. Market fears have intensified against the background of the recent report that the new B. Johnson's team has stepped up preparations for Brexit without a deal.

Meanwhile, the Confederation of British Industrialists (CBI) published a report last weekend in which it was concluded that neither Britain nor the EU is properly prepared for Brexit without a deal. At the opening of the European market, the situation was further aggravated by the grim statements of British Foreign Minister D Raad.

Meanwhile, the US dollar is consolidating after its growth, driven by the strong results of the US Q2 GDP report on Friday. The decent performance allowed the markets to reconsider their expectations regarding too aggressive easing of the Fed's policy following the meeting, which will take place this Wednesday. As a result, the pair tested daily support at 1.2351-77 (March-April 2017 area). Further, the bearish target was the lows of March 2017 at 1.2110.

The dollar rose to a maximum of two months

The dollar rose to a maximum of two months

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Jim Anderson - Public Relations

On Friday, the dollar rose to a maximum of two months, continuing the trend of appreciation against the euro and the pound after unconvincing action by the European Central Bank and the new British Prime Minister on Thursday. During night trading, the US dollar index shows the dollar’s purchasing power against a trade-weighted basket of six major currencies rose to 97,627 and by 9:00 London time, it was kept close to this value. The appreciation of the dollar is contrary to intuition, given that data on US GDP growth for the second quarter, according to analysts, should show a sharp slowdown in growth – below 2% on an annualized basis.

In part, the appreciation of the dollar is associated with a decline in the major currencies. The shadow of the Brexit continues to put negative pressure on the pound and more and more on the euro after the first appeals by British Prime Minister Boris Johnson to the EU authorities were sharply rejected on Thursday. The pound was close to the lows for many years after two months ago, the prospect of “hard” Brexit under the leadership of Johnson became the most likely scenario.

 

 

Euro fell to a minimum of 2 months before the ECB meeting

Euro fell to a minimum of 2 months before the ECB meeting

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Jim Anderson - Public Relations

On Wednesday, the euro fell to a minimum of two months due to forecasts that the European Central bank could open the way to easing monetary policy. The British pound is trading close to the minimum for two years against the background of the prospects of “hard” Brexit. At 8:30 London time, the euro fell 0.17% to 1.1131, the lowest since May 31. On Tuesday, the euro fell by more than 0,5%, and for this week by 0,7%.

The depreciation of the euro accelerated with the approach of the ECB meeting on Thursday. Another negative factor for the euro was the fall in the value of the pound to a minimum of two years after Boris Johnson won the right to become the next British Prime Minister on Tuesday, which increased the chances of a hard Brexit.

Johnson's win did not prevent the growth of the pound

Johnson's win did not prevent the growth of the pound

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Erik Holm - Head of media

The pound showed a steady decline, but by noon the mood of market participants has changed dramatically, while even weak data from the Confederation of British manufacturers did not prevent its improvement. The pound continued to be even more enthusiastic after the news that Boris Johnson won the race for the post of British Prime Minister. Veterans of the market associate such a reaction with the implementation of the strategy "sell on rumors, buy on facts" – the victory of the ardent supporter of Brexit at any price was expected and taken into account in prices.

Soon, recovery may continue, but the extent of the improvement in the dynamics of the pound will depend on whether Johnson's harsh rhetoric was only a pre-election stunt and he will take a more cautious and balanced position in dealing with British parliamentarians and EU negotiators. For the new head of the British government, it is extremely important to overcome the disunity of members of the conservative party – otherwise, he may initiate early general elections.

Johnson’s victory in the inner-party elections was more than convincing: he scored 92,153 votes against 46,656 from Jeremy Hunt.

Upward move of EUR / USD on the Fed official's comments

Upward move of EUR / USD on the Fed official's comments

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Jim Anderson - Public Relations

Officials suggest that, despite the absence of obvious harbingers of a recession, the US-Chinese trade war weakens business confidence, and the global slowdown in manufacturing activity may be enough to justify the need for quick and aggressive measures.

The head of the Federal Reserve Bank of New York, John Williams, said on Thursday that because of the low rates and inflation, officials couldn’t afford to take a pause in anticipation of economic problems. However, Williams did not say whether this means that he would support a rate cut later in June.

At the same time, Fed Deputy Chairman Richard Clarida said that officials may have to act quickly to stimulate the American economy as a hedge against growing risks.

The market quickly responded to comments from two high-ranking Fed officials. On Thursday afternoon, the EUR / USD pair started to move up sharply and by 3:00 pm New York time, the rate rose from 1.12170 to 1.12800.