FX outlook: Parky’s quick take – 6 July 2020

06 July 2020

Neil ParkerFX Markets Strategist

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What’s happening with currencies this week? Neil Parker, Market Strategist shares his views.

Great Britain

UK re-opens its air corridors to most of Europe

The UK government announced that, from 10 July, travellers to and from over 50 countries would be allowed to enter the UK without the need to quarantine. However, some countries are yet to re-open to travellers from the UK, so will airlines re-open routes? This news is a further indication of the UK government’s intention to re-open other parts of the economy, having already announced the re-opening of all retail and most retail services (such as the food and beverage industry). The services Purchasing Managers’ Index (PMIs) for June recorded a further uptick last week, but this wasn’t back above 50, unlike the manufacturing PMI which reported a very modest expansion. This week sees few data or survey releases. The pound rallied a little last week, but ended the week on the defensive. Will this week prove any different? UK businesses will be hoping that the unlocking of the economy will help to rebuild confidence, prompting a rebound in spending during the summer months. After last week’s announcements of layoffs from major UK employers, hopefully this week will see fewer or no similar news.

United States

Markets cautious about further improvements in the economy

In the US, last week’s June non-farm payrolls report ahead of the Independence Day holiday reported a net gain of 4.8m jobs, after the 2.6m jobs created in May. Even with this, the markets were cautious about the prospects for a futher improvement in the US economy, as the coronavirus outbreak remained high across some US states, and the levels of new infections reached new highs in others. The US economy might have to take one step backwards, with lockdowns re-introduced, before moving forwards once again. Risk appetite has improved once again at the beginning of this week, but will this persist, and what will it mean for the USD if it does? During the most recent risk appetite improvements, the USD has been under pressure, but with coronavirus outbreaks persisting, does that offer the USD a bit more support?  

Europe

PMIs offer glimmer of hope for return to normality

Euroland enjoyed an uptick in both the manufacturing and services PMIs last week from their provisional readings. This suggests that things are returning to normal, although Germany seems to be lagging behind the improvement seen in the likes of France and Spain. This week’s data and surveys include German industrial production figures for June on Monday and Tuesday, and Italian industrial production data for May, released on Friday. It’s a fairly light data and survey calendar, and in all likelihood won’t offer the EUR much support. Last week’s talks between the EU and UK over trade ended early with little progress having been made, which wasn’t helpful for risk appetite. With no important releases due this week, it may fall to events elsewhere in the globe to offer greater clarity for the FX markets.

Rest of the world

Will Malaysian monetary policy decision prompt change?

From the rest of the world we have a number of central bank meetings. Monday sees the Central Bank of Israel meet, Tuesday sees the turn of the Reserve Bank of Australia and Malaysian Central Bank, and Friday sees the decision from the Central Bank of Peru. It seems only the Malaysian monetary policy decision is likely to bring about any change in policy. Any surprises are likely to be limited given how low interest rates are around the globe. Some renewed localised lockdowns in Australia, seen as cases of coronavirus reappear, may undermine the optimism seen from the RBA in the minutes of their last meeting.

To read last week's quick take, please click here.

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