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GBP/USD plummets to three-week low in risk-off trade

currency-newsGBP/USD plummets to three-week low in risk-off trade
The US dollar traded with strong gains on Tuesday as the currency benefitted from considerable safe-haven flows.

Meanwhile, the pound is mostly rangebound so far this morning, with GBP/EUR flat at €1.1723 and GBP/USD muted at $1.3740. GBP/CAD is subdued at C$1.7323, while GBP/AUD and GBP/NZD hold steady at AU$1.8922 and NZ$1.9843 respectively.

Looking ahead, will some dovish FOMC minutes force the US dollar to relinquish some of Tuesday’s gains later this evening?

What’s been happening?

The US dollar rocketed higher yesterday, as a prevailing risk-off environment saw investors flock to the ‘greenback’.

Considerable safe-haven flows were seen on Tuesday, bolstering USD demand amidst ongoing coronavirus uncertainty and rising geopolitical tensions in light of the situation in Afghanistan.

These more than offset the publication of some disappointing US retail sales figures, which reported a larger-than-expected contraction of sales growth last month as a domestic coronavirus resurgence dented consumer demand.

Meanwhile, despite struggling in the face of considerable USD strength, the euro was able to trend broadly higher against its other peers, buoyed by a robust GDP estimate and a solid improvement in employment growth in the second quarter.

Finally, we saw the pound come under some notable pressure yesterday, in spite of an upbeat UK jobs report, which reported a surprise drop in unemployment and surge in domestic wage growth in June.

What’s coming up?

Today’s session was kicked off by the publication of the UK’s latest consumer price index.

July’s CPI figures reported domestic inflation cooled much more quickly than expected last month, which could extend the pound’s losses today, as it further dampens Bank of England (BoE) tapering expectations.

The Eurozone will publish its own CPI figures a little later this morning. July’s finalised release is expected to confirm inflation in the bloc accelerated to a three-year high of 2.2% and may offer some modest support to the euro today.

Meanwhile the spotlight for USD investors will be on the minutes from the Federal Reserve’s most recent policy meeting.

The minutes could reverse some of the US dollar’s recent gains, if they reaffirm the Fed’s reluctance to begin tapering its bond buying programme.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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