Good morning,

As we close the working week, it is very much a tale of two cities for sterling, namely a crash to the bottom of its monthly range against the euro and a surge above versus the dollar. Whilst it is unusual to see such diversion on the majors, with the pound being the punching bag for both across most of the last few months, the collective weight of numerous dollar issues now mean that even the Brexit-loaded sterling looks attractive for markets. Whilst the continuing slide on GBP/EUR can easily be attributed to the stuttering Brexit negotiations and Corona-bond success, the across-the-board collapse of the dollar needs additional analysis, as it essentially rests upon four broad reasons: lockdown, rioting, the central bank and Wall St.

Firstly, the continuing inability of the US central Government to sufficiently curb infections and deaths means the world’s largest economy still remains half shuttered, stifling its domestic and international trade. Secondly, following on from the woe of economic lockdown, over 40 cities are now embroiled in bitter civil unrest following the unlawful murder of George Floyd, with rioters causing millions of dollars worth of losses in damage and theft to the already beleaguered businesses. On top of this, we also have the third and fourth factors, namely the Federal Reserve’s insistence on providing limitless new dollar stimulus whilst also expanding into the purchase of funds that include stocks; a move that has continued to boost the stock market and move more in the market away from the safety of the dollar. Considering that usually only one or two of these factors would cause a move away from the dollar, the cocktail of four equally damaging factors all blending at once means the dollar could be in for a protracted white knuckle ride.

Admittedly, it can be hard to understand all of the working parts, but having an understanding of the risks on both sides of a currency transfer is vital to fully understanding the risk involved. Feel free to drop an email with any questions to either me or your account manager before the weekend, you can reach me here.

Have a great weekend,

Author: Joshua Haden-Jones, Senior Relationship Manager


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