European currencies and indices took big hits yesterday as the very real threat of 2nd waves increase. Both France and Spain are now seeing larger daily infection rates than during the March peak while the UK’s rate is rising at an alarming pace. The US dollar, as expected, absorbed the flows and gained handsomely on the day.
The pound lost almost 2 cents against the US dollar yesterday in what ended up turning into a rout. The UK FTSE 100 fell over 3.25% while the German DAX 30 dropped over 4%. EURUSD fell too, but its losses were somewhat limited compared to sterling. The market has a lot to contend with at present between Brexit, US elections, and concern over the virus, it appears we could revert to a scenario where the US dollar dominates once again.
If we take ourselves back to mid-March, the pound traded at $1.15 versus the buck while EURUSD was hovering over the $1.07 level. Market sentiment can shift very quickly. While this is by no means a statement claiming we will go back to those levels, it should serve as a reminder of where the markets have been since the start of the year as well as the clear positive correlation between increased pandemic concern and a stronger US dollar. While many USD buyers will be focused on the rate’s recent run to $1.34 and a potential return to that level, it must be remembered that the situation was very different 3 weeks ago to what it is now.
Today’s economic calendar sees a speech from the BoE’s chief, Andrew Bailey. Additionally, Fed Chairman Powell will be testifying to congress in the afternoon session. Data-wise, US existing home sales will be the highlight.
Written by Viv Savani. 8:01am, September 22nd 2020
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