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Euro weakness puts EURUSD close to parity

Good morning

So Boris Johnson resigns and will leave in the Autumn when his successor is found. That task is already underway, Ben Wallce, the current defence secretary is favourite at the bookies, followed by Rishsi Sunak and Penny Mordaunt. I’d imagine the odds will change as new candidates step forward. GBP pretty much unchanged on the news, in fact it had a reasonable day yesterday with GBPUSD trading up to 1.2020 in the afternoon and then up to mid-1.20s overnight, but has slipped all the way back to 1.1930 this morning as US dollar buyers emerge.

GBP had a strong day, indeed a strong week, against EUR, EURGBP now at 0.8455 (GBPEUR 1.1830) having started the week at 0.8620 (1.1600). Obviously more to do with EUR weakness than particular GBP strength mind you. EURUSD creeping closer to parity, now below 1.0100 as I type, lowest levels since Dec 2002. ECB minutes yesterday made it clear the European central bank sees their inflation issues as different to the US and feel a gradual process of rate rises will be acceptable. Some members though would prefer to see a larger first rate rise. Technical traders will be watching the weekly close but a move below 1.0000 looks rather inevitable now. We will hear from Lagarde this afternoon.

In Japan, former Japan PM Shinzo Abe has been shot at a political rally ahead of this weekends upper house election. Abe is in a critical condition, possibly unlikely to survive. The culprit has been arrested. Abe was Japans longest serving Prime Minister and his economic plans earned his strategy the name ‘Abenomics’. We hope he recovers from this attack, the likes of which are really unusual in Japan. USDJPY fell 70 pips or so to 135.35 on news of the attack but has recovered most losses, now 135.85.

US employment numbers out today, a headline around +270k seems to be expected. This would be a weaker reading than we’d have seen for a year or so but its still adding jobs. The unemployment rate is expected to remain around 5.1% which is historically low. So a lower headline reading could give the market an idea that the economy is slowing, but both Feds Bullard and Waller yesterday seemed optimistic on the economy despite the fact there are more rate rises to come, and the fears of a recession seem to be waning. This seems to have given USD a boost this morning. Feds Williams, a key figure in the FOMC, speaks later today, perhaps we will learn more about what to expect at the next rate meeting later this month. Meanwhile we still wait for Biden to decide on whether to lower or remove some tariffs on China, I had thought we’d have heard something earlier in the week.

It looks like the UK will be facing something of a heatwave next week, with temperatures rising above 30 degrees in some areas. In fact those temperatures look set to stay into the following week as well. Not ideal conditions for Wimbledon or indeed the ladies Euros, Great news for those who don’t have to be in an office. So, make the most of the weekend, once again the smell of burnt sausages will no doubt be drifting from gardens across the UK.

- 12.55 ECBs Lagarde speaks

- 13.30 US nonfarm payrolls

- 13.30 CAD employment

- 15.00 US wholesale inventories

- 16.00 Feds Williams speaks

- 20.30 CFTC position data

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