Sterling’s best two-week run since November
Kevin Copping
Empowering businesses worldwide to trade and grow internationally with ease by understanding the core factors that are unique to their business and developing a currency framework and alternative finance options.
Highlights
British pound has its best two-week performance against the U.S. dollar since November?
Dollar strengthens as Trumps garners support after shooting.
Argentina's central bank will start selling U.S. dollars in the country's parallel markets.
Spain win Euros and Alcaraz dismantles Djokovic to win Wimbledon.
The Week in Review?
In recent developments in the foreign exchange market, the British pound is experiencing its best two week performance against the U.S. dollar since November. This surge is attributed to positive data indicating improved UK economic growth and signs of a weakening U.S. economy. Over the past two weeks, sterling has risen by 2.4% against the dollar, with a recent increase of 0.3% bringing it to $1.2949. This makes it one of the top-performing major currencies currently.
Simultaneously, the yen has also made significant moves, recording its largest gain since early May. This movement followed probable intervention by the Bank of Japan to bolster the yen, coinciding with a weakened dollar after a softer U.S. inflation report. The yen's strength led to the pound dropping over 1% against it on Thursday, though it later rebounded by 0.3% to 205.65 yen, approaching its highest level since early 2008.
The U.S. dollar saw a notable decline against the yen, falling by 0.6% to 157.85, and the dollar index dropped 0.24% to 104.09. This decline came as investors focused on potential Federal Reserve interest-rate cuts, spurred by a lower-than-expected consumer price index report and mixed U.S. economic data.
Elsewhere in currency news, Argentina's central bank plans to sell U.S. dollars in parallel foreign exchange markets to combat inflation and stabilize the country's monetary supply. This new strategy, announced by Economy Minister Luis Caputo, aims to deepen the disinflation process by balancing Argentina's monetary base.
On Wall Street, major indices like the Dow Jones, S&P 500, and Nasdaq Composite posted gains, while MSCI's All Country World Price index hit record highs, suggesting a strong performance in global equities. Meanwhile, European shares also saw positive movement, with the Stoxx share index up by 0.88%.
Commodity markets saw a dip in global oil prices as investors weighed weaker consumer sentiment against optimism about U.S. rate cuts. U.S. crude settled at $82.21 per barrel, and Brent at $85.03 per barrel. Gold prices remained relatively stable, maintaining a positive outlook with bets on U.S. rate cuts driving the third straight weekly rise in bullion.
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The Week Ahead
In the week ahead, several key factors are likely to influence the currency markets. Here are some key points to consider:
Central Bank Policies and Economic Data
Bank of England
Following the recent positive growth data from the UK, the focus will be on any comments from the Bank of England regarding its monetary policy stance. The absence of further rate hikes or dovish comments could temper the pound’s recent gains.?
Federal Reserve and U.S. Data
Traders will be closely monitoring upcoming U.S. economic data releases, including retail sales and industrial production figures. These will provide insight into the strength of the U.S. economy and potential future actions by the Federal Reserve. Any data suggesting weaker economic performance could bolster expectations for interest rate cuts, further weakening the dollar.
European Central Bank (ECB)
The ECB's policy updates and economic data from the Eurozone, including inflation and GDP growth figures, will be crucial. Signs of economic stability or recovery could support the euro.
Yen and Bank of Japan (BoJ) Intervention
After last week’s likely intervention by the BoJ, traders will be on high alert for any further actions. The BoJ's efforts to prop up the yen could continue to create volatility in yen pairs. Market participants will also watch for any official confirmations or denials from the Japanese government regarding their currency market interventions.
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Geopolitical Developments
Trade and International Relations
Ongoing trade negotiations and geopolitical tensions, particularly involving major economies like the U.S., China, and the EU, could impact market sentiment and currency valuations. Any significant developments or escalations could lead to safe-haven flows, benefiting currencies like the yen and Swiss franc.
Commodity Prices
Movements in global commodity prices, especially oil and gold, can influence currencies of commodity-exporting countries such as Canada and Australia. Any significant changes in these markets can lead to corresponding movements in their currencies.
Emerging Markets
Argentina’s strategy to sell U.S. dollars in its parallel markets to combat inflation and stabilize its monetary base will be watched closely. The effectiveness of this strategy could influence the peso and have broader implications for other emerging market currencies.
Technical Analysis and Market Sentiment
Technical Levels
Traders will be watching key technical levels for major currency pairs. For instance, if the pound continues to rise against the dollar, breaking through psychological resistance levels like $1.30 could trigger further buying.
Market Sentiment Indicators
Sentiment indicators, including positioning data from the futures markets and various investor surveys, will provide insights into market expectations and potential trends.
Overall, the currency markets are likely to experience significant movements driven by central bank policies, economic data releases, and geopolitical developments. Traders should stay informed and be prepared for potential volatility.
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