It has been yet another crazy week on the market- after seeing another 5 days of sell-offs on the U.S Stock market, with the selling also hitting assets such as Gold and Bitcoin. Through all of the selling of these assets, it seems investors found a safe haven in the U.S Dollar- and this has reflected in the GBPUSD exchange rate as we have gone from 1.42 down to 1.37 in a matter of two weeks!
The selling continued after Fed Chair Jerome Powell stuck to his guns on policy, and though has confirmed that the U.S economy is nowhere near his targets for recovery, investors wanted to him to address and maybe implement Yield Curve Control- and threw a tantrum straight after the speech which saw the market sell-off more. Now, to put this into context, the U.S Stock market is around 4-5% off its all-time highs, so this isn’t a painful sell-off- but for investors who were expecting markets to only go up this year, it seems to be coming as a pretty large shock!
Now, though Sterling’s performance against the U.S Dollar has been (understandably) underwhelming- it has been impressive to see how it has held up against the Euro, with GBPEUR managing to close the week above 1.16- which is now opening trade through to 1.17 at the very least.
Looking at this week- the first positive news is that the U.K’s reopening plans begin on Monday with children going back to school on 8th August, and for it to be legal to socialise with one person outdoors- providing we do not see a spike in cases over the next two weeks, this will fuel the case for next steps of reopening, which I am sure will be welcomed by the public with open arms!
This week’s focus really lies with Central Banks with BoE Governor Bailey speaking on Monday morning (10am) about the economic outlook of the UK. We will be mainly watching for news about inflation in the UK and any words to be spoken about negative interest rates- over the last few months this has been talked down which has helped Sterling, but until the talk completely vanishes, it does remain a risk for GBP.
Looking at Europe, the ECB rate decision on Thursday- though no change in policy is expected, may shed some light on the plans for Europe over the coming months. Eurozone yields have also risen alongside U.S yields, and I am expecting the ECB to address this, so far the Eurozone’s recovery is slow and we are closely watching the vaccine rollout to fuel next steps of recovery in Europe- the EURUSD exchange rate has of course fallen as the U.S Dollar has gained strength, which will help the ECB, but we are expecting exchange rates to rise as the U.S Dollar weakens again over time.