Sterling advances again

The Pound was the darling of the markets yesterday. The continued fall in covid cases in the UK and a steady stream of improving economic data have given traders and investors pause for thought. The aggressive GBP selling we saw from May through until last week has given way to a more general bout of profit-taking and some more supportive buying.

US Federal Reserve in the evening spotlight

GBPUSD didn’t get above $1.39 and it hasn’t been above there for more than a month. Traders are undoubtedly holding their horses ahead of this evening’s US Federal Reserve interest rate decision and accompanying statement. No, they won’t move the base rate but they could well add hints regarding timing and triggers for their normalisation plans for US monetary policy and that is what everyone wants to hear. So GBPUSD is resting less than half a cent below the ceiling of $1.39 and could be above or below that level by this time tomorrow dependent on the Fed’s rhetoric.

Part of the reason for the Pound’s failure to launch above $1.39 is the disappointing house price survey from Nationwide. UK house prices were up 10.5% in July; a couple of percentage points below the market forecasts. There isn’t anything in the UK data diary today. So Sterling is going to ride the waves created elsewhere.

The Euro was stalled by this morning’s German consumer confidence index; or more accurately, the consumer pessimism index. That was at minus 0.3; unchanged from the previous month and well below the market forecasts. This Gfk index hasn’t been in positive territory since March 2020 and the markets were expecting to finally see some upside. Hence the disappointment. That’s all we have for the Eurozone today, so the GBPEUR rate, which starts at €1.1745, will probably need another kind of catalyst to get it to test €1.18 again. We have to scroll the charts back to February 2020 to see the last time this pair was above that level.

EURUSD rate is in a downtrend that started back in May. Coincidentally, as with the GBPEUR rate, $1.18 is the key level. If the Euro can push back above there, the picture changes but it isn’t looking likely right at the moment.

We will see Canada’s inflation data this afternoon. That should show a slowdown in the core Consumer Price Index. It was running at an annual 2.8% in May but June data is likely to be more like 2.4%. The GBPCAD rate is up to CAD 1.7475 this morning, the highest level since April. If the Canadian inflation data is worse than forecast, the rate ought to rise.

GBPAUD highest since May 2020

The most exciting chart is that of GBPAUD but it is interesting to look at for unfortunate reasons. This pair is up to AUD 1.8880 this morning; the highest it’s been since May 2020. The ongoing covid problems and lockdowns in Australia are causing traders to steer clear of the Aussie Dollar. The lockdown in Sydney has been extended today and, as you know, Sydney is a huge financial centre for Australia and the pacific region. It is likely the AUD will remain subdued until more positive news starts to emerge over the covid response.

I’ll finish with a huge congratulations for the British women’s Olympic gymnastics team who won our first medal in the event since 1928. Now that is a legacy. Bravo.

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