10 June 2020

Pound Spikes to Three-Month High Against US Dollar

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News shaping
the markets today

     

What’s happening: The British pound reached a new three-month high against the US dollar on Tuesday.

What happened: The pound gained 3.1% versus the greenback this month, rising past the $1.27 level for the first time since March.

The sterling rose against the US dollar as various countries began emerging from coronavirus-induced lockdowns, which pushed the demand lower for the safe-haven greenback. The pound slipped slightly versus the euro on Tuesday, with markets awaiting more details of the reopening plan for the UK economy.

Why it matters: Amid active forex day trading, the sterling has risen strongly in June, recovering the steep losses it sustained in May due to growing concerns over negotiations of Brexit trade agreements.

Britain and the EU concluded their fourth round of trade talks, with some progress made in the deal. Both sides also indicated their willingness to move forward with the talks. Japan’s foreign ministry also said that the country had agreed to begin talks with the UK over a trade deal.

The currency market was also impacted by UK’s announcement of a fourteen-day quarantine period for international travellers arriving in the country on Monday. The decision enraged airlines, which threatened further job losses.

Meanwhile, a tourism lobby group said that travel corridors, allowing unrestricted movement between the UK and certain other countries, would be opened from June 29. However, Spain has thwarted talks with the UK to set up an ‘air bridge’ for holidaymakers, amid attempts by the European governments to balance opening up for tourism and containing the coronavirus.

The British pound climbed to a new three-month high of $1.2757 but fell as low as $1.2620 during Tuesday’s session. The UK currency rose again to trade at $1.2735. Against the euro, the sterling declined about 0.5% to trade at 89.20.

What to watch: With UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen expected to meet next week, investors are hoping for positive negotiations and inking of the Brexit deal. Forex trading in the GBP/USD is supported by the current risk environment and investors will look out for any news related to the global economic recovery. Traders will also keep an eye on the US Federal Reserve’s policy announcement today.

The Markets Today

     

European stocks will be in focus today, after closing lower in the previous session.

Context: European stocks closed lower on Tuesday, amid profit taking and investors looking for new catalysts following the strong rally last week. Markets await the US Federal Reserve’s policy announcement scheduled for later today.

Details: The pan-European Stoxx 600 index declined 1.2% on Tuesday, with most sectors closing in the negative zone. Banking and travel-related stocks were the top losers, with both shedding more than 3% in the previous session.

Despite investors hoping for a faster-than-projected economic recovery following the pandemic, the World Bank said it expects the global economy to contract by 5.2% this year.

Eurozone’s economy shrank by 3.1% in the first quarter, while Germany reported a record 24% decline in its exports for April.

Shares of British American Tobacco fell more than 3% after the cigarette maker lowered its profit and sales projections for the year. Aveva’s shares gained 4% after the UK engineering group reported a 23% increase in its adjusted operating profit and maintained its dividends.

London’s FTSE 100 slipped 2.11%, while the Dax 30 index fell 1.57% on Tuesday. The French CAC 40 posted a decline of 1.55% in the previous session.

What to watch: The economic calendar is light today, with only France expected to release its report on industrial production. France’s industrial production, which dropped 16.2% in March, is expected to tumble 20% in April. Markets await the Fed’s decision following the two-day policy meeting.

Investors will continue to monitor coronavirus cases, with total infections surpassing 7,238,720 globally. Britain has confirmed more than 290,580 cases, while the number for Spain stands at 241,960.

Other Markets: US indices trading closed mostly lower on Tuesday, with the S&P 500 and Dow Jones index down by 0.78% and 1.09%, respectively. The Nasdaq 100 gained 0.29%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Turkey’s unemployment rate, South Africa's SACCI business confidence index, Brazil’s inflation rate as well as the US MBA mortgage applications, inflation rate and EIA’s crude oil stocks.

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