The buck took a beating yesterday as economic data and a large move in the US bond market spooked investors. The pound rose and closed above $1.30 while EURUSD edged closer to the $1.19 handle. Stock markets fluctuated while US bonds saw a huge jump higher in prices as yields plunged lower.
US Q2 GDP fell a whopping 32.9% on an annualised basis. While this was not as bad as forecast, it still hits home the reality of how sharp the downturn has been. The print is the worst in history and caused significant movement across financial markets yesterday. US 10 year government bonds saw a huge pickup in demand, pushing the yield towards 0.50% (for perspective, they were almost 3.2% 2 years ago!). This in turn drove the dollar down which saw it weaken against all its major peers.
The pound was one of the best performers yesterday. Everyone likes to believe there’s a definitive reason behind FX moves but yesterday’s was perplexing, to say the least. While the economy is ticking along, the UK has its own problems. The ‘B’ word springs to mind as one issue which feels like it has been pushed to one side and replaced with non-stop Covid-19 related headlines. But we also have to take note of the various regional restrictions coming into play across the UK and the very real prospect of a second wave. How long can the pound continue to defy gravity?!
Have a great weekend.
Written by Viv Savani. 8:31am, July 31st 2020
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