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US dollar set for weekly losses against GBP, NZD and AUD

The US dollar (USD) has staged a tentative recovery on Friday amid a shift in sentiment which has seen the currency reclaim losses against the British pound (GBP), the euro (EUR) and other major currencies.

Despite investors seeking out the safe-haven currency, the greenback nonetheless remains set for weekly losses, with steep declines against the Japanese yen (JPY) expected.

It’s been a tumultuous week for the US dollar (USD), which started the week on the backfoot until the US Federal Reserve said it had made upward revisions of US economic growth forecasts for 2020, which boosted the American currency.

However, the US dollar (USD) soon shed those gains after official data showed that the number of people claiming unemployment benefits in the United States declined at a slower-than-expected pace.

Data released on Thursday showed that the number of people in the United States filing new claims for unemployment benefits remains elevated, suggesting the country’s labour market recovery is stalling.

Although the US dollar (USD) is recovering heading into the New York session, ongoing political and geopolitical uncertainty could unravel the greenback in the coming months.

At the time of writing, the US dollar (USD) is trading 0.2% higher against the euro (EUR) at EUR 0.8452, and 0.3% higher against the British pound (GBP) at GBP 0.773 on Friday.

While foreign exchange (FX) markets are flip-flopping, the potential for further upbeat data from China and other economies has caused analysts to revise forecasts for riskier currencies, such as the Australian dollar (AUD) and New Zealand dollar (NZD), higher.

New Zealand dollar money banknote Edmund Hullary close-up

Strong export growth in China buoying Australian dollar and New Zealand dollar outlook

Although the Australian dollar (AUD) and New Zealand dollar (NZD) are trading on a softer note this evening amid mixed sentiment, some FX analysts forecast the antipodean currencies to grind higher heading into the winter.

The currencies positive outlook has been credited to strong export growth in China, with the country emerging as one of the first to recover from coronavirus doldrums.

Currently, China “is on course for a more pronounced recovery than elsewhere,” wrote Capital Economics economist, Julian Evans-Pritchard.

Furthermore, when considering fundamentals for growth in Australia and New Zealand, expectations for further rallies in AUD and NZD are justified. Both countries are very well positioned due to their economic dependence on China which buys a substantial amount of their raw materials.

Today, the “Kiwi” currency is also benefiting from a stronger-than-expected economic rebound in New Zealand, which investors hope will temper dovish action from the Reserve Bank of New Zealand (RBNZ).

According to Statistics New Zealand, the NZ economy contracted by 12.2% in Q2 of 2020, beating preliminary readings for a decline of 12.5%. Stats NZ also made an upward revision on NZ gross domestic product (GDP) estimates for Q1, which was amended from -1.6% to -1.4%.

However, some analysts have said it is too early to predict where NZD exchange rates are heading until the RBNZ writes off the possibility of a negative interest rate cut in New Zealand.

Australian Dollar (AUD) Currency

Australian dollar gains disrupted amid a risk-off shift

Flip-flopping FX markets have limited the Australian dollar’s (AUD) recovery attempts on Friday, which had benefited from a series of upbeat Chinese data earlier this week.

Now, we are beginning to see the marketplace shift to a risk-off tone which favours the US dollar (USD) against most currencies.

Rising COVID-19 cases in the European Union and the UK appear to a particular cause for concern among investors, which is also causing some choppy behaviour in the euro (EUR).

With no high impacting data due until next Wednesday, the Australian dollar (AUD) is being driven by FX market sentiment.

At the time of writing, the British pound to Australian dollar (GBP/AUD) exchange rate is flat at AUD 1.7741, despite recent Brexit developments which have increased selling pressure on GBP.

Today, pound Sterling (GBP) is benefiting from stronger-than-expected retail sales data and positive comments from EU Commission President Ursula von der Leyen, which restored Brexit hopes.

Pound sterling GBP

Pound Sterling supported by upbeat Brexit comments

The British pound (GBP) has reclaimed some of its losses triggered by the Bank of England’s (BoE) dovish outlook on the UK economy arising from a surge in COVID-19 cases, the risk of mass unemployment and the possibility of a no-deal Brexit.

During Thursday’s monetary policy meeting, the UK central bank said they were being forced to consider all eventualities amid this “unusually uncertain” outlook, including a negative interest cut, which shook investors and sent GBP tumbling.

However, comments delivered later in the afternoon by EU Commission President Ursula von der Leyen and other EU diplomats restored hopes of Brexit deal.

After lashing out at Prime Minister Boris Johnson for attempting to override areas of the Brexit treaty, Ms von der Leyen told the Financial Times that she was “convinced” that London and Brussels could still reach a free trade agreement.

Pound Sterling (GBP) rebounded following the news and looked to be on course to record weekly gains against the US dollar (USD), euro (EUR) and other major currencies on Friday.

However, a late shift in sentiment has caused pound Sterling (GBP) to slide by 0.2% against the US dollar (USD) and 0.3% against the euro (EUR).

Pound Sterling (GBP) is also becoming more sensitive to Brexit developments with the transition period deadline looming. With a relatively light economic calendar next week, all eyes will likely be on the UK government’s plans to pass new legislation, which could increase selling pressure on the British pound (GBP) if Boris Johnson succeeds.

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