YB FX Daily Report – 10th of August

After Sterling’s positive start last week was almost totally unwound by the shock extension of the quantitative easing measures by the Bank of England, the pound has been struggling to shake off the effect that this news had. This coupled with some dollar strength leaves GBP sitting at just above 1.66 against the USD and hovering just above 1.17 against the Euro.

Global stock markets rallied on Friday after US Non Farm Payrolls dropped much less than expected coming in at a 247k drop rather than an 325k boosting recent optimism about the state of the economy. Recovery seems to be at the front of investors minds now rather than risk as for the first time since early in the year, stock markets rose and the USD gained strength. It is unclear if the negative link between stock markets and the greenback has been broken but this shows it has definitively been weakened and the flight to the safety attitude of investors every time markets drop seems to be reducing. Although Sterling was hit quite hard at the end of last week dropping around 3 cents against the USD, the general trend is still upwards and the shock news from the BoE only took us back to where GBP would have been if it was not for the gains at the beginning of the month.                                           

No real data out today so possibly a quieter trading day and nothing to possibly pull GBP back to it recent highs but also nothing that should hurt it any more either. Looking to the rest of the week we have some trade balance data out for the UK tomorrow and US non farm productivity for Q2 and then we have the Fed rate decision on Wednesday along with quite a bit more US data in the latter half of this week. With the recent uncoupling of USD strength with economic news, the back end of the week could prove to be interesting.