Risk sentiment sours, US Dollar rebounds

Sterling falls on sentiment and Brexit 

The Pound made gains against a host of other currency majors early last week, hitting interbank levels as high as 1.28 versus the US Dollar. However, between the middle and end of the week, risk-off sentiment swept the market, causing safe-haven assets to climb, and the Pound to fall. Familiar Brexit rhetoric was also repeated: the UK won’t seek to extend its transition period and negotiations need to be more productive to ensure Britain has an agreement in place by the close of the year—something markets hope to see this week. Additionally, UK growth data posted a rather shocking figure, noting a -24.5% contraction year-on-year. In the week ahead, the Bank of England will announce its latest monetary policy decision; any clues or hints about negative interest rates or increased bond buying will be of interest to markets. Meanwhile, labour market, inflation, and retail data will all be out in the rest of the week. The Pound begins this week trading at interbank levels of 1.25 versus the US Dollar, and 1.11 against the Euro.

Common currency retains some strength 

The Euro fared better as risk-off sentiment swept the market, trading close to year-to-date highs on a trade-weighted basis. In the week ahead, German inflation and sentiment, as well as Eurozone inflation data will all be out, which could influence the common currency. Meanwhile, data highlighting Covid-19 cases and deaths could also be influential for the Euro as countries look to see if there are signs a second wave could soon take hold. The Euro has begun the week trading in the interbank region of 1.12 versus the US Dollar, and 0.89 against the Pound.

Dollar makes a comeback

The US Dollar experienced some popularity last week, registering its first weekly gain in three weeks after the Federal Reserve’s dovish announcement and general decrease in risk sentiment. The US central bank reminded markets that the economic damage facing both the world and the US economy remained stark, with a slow recovery ahead. While the monetary policy announcement did little to impact the US Dollar, the follow-up comments by Fed Chief Jerome Powell encouraged a flight to safe-havens. In the week ahead, manufacturing, retail, industrial production, and weekly labour data will all be released, which could impact the US Dollar, as well as speeches from Fed members. The US Dollar has begun the week trading at interbank levels of 0.88 against the Euro, and 0.79 versus the Pound.

Risk currencies soften 

A recent resurgence of the coronavirus in Beijing has prompted the Aussie and Kiwi Dollars to slip further against the US Dollar. China is both Australia and New Zealand’s largest trading partner, so any news released from the world’s second-largest economy can impact the way the Oceanic currencies trade. Overnight, Chinese data also failed to meet forecasts, showing the economy is struggling to get back on track following the coronavirus. Markets are waiting to see signs of whether a second wave could overcome the global economy once again, after recently regaining some footing with the re-opening of businesses.

In the week ahead, the Reserve Bank of Australia will release its latest meeting minutes ahead of highly influential labour market data later in the week. Meanwhile, New Zealand will publish its latest GDP Growth Rate data which could be a significant influence on the Kiwi Dollar. The Pound begins the week at interbank levels of 1.83 versus the Australian Dollar and 1.94 against the New Zealand Dollar.

Oil falls as commodities retreat

Last week, the Canadian Dollar experienced some choppy trading against its US counterpart as market sentiment soured, ending a three-week run of gains higher. Oil and commodity prices have been lower as the risk-off momentum builds, which could continue to influence the Canadian Dollar as black gold is Canada’s most lucrative commodity. Native data could have the potential to influence the Loonie, with the release of inflation, housing, and retail data all scheduled for the week ahead. The Pound has started the week at interbank levels of 1.71 against the Canadian Dollar.