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Increased demand for the pound (Afternoon analysis 7.07.2020)

7 Jul 2020 18:02|Bartosz Grejner

In the UK, the super Saturday and the stimulus package are in the limelight, and in the background, there are trade negotiations, mainly with the EU. The next weeks and months will probably bring back increased volatility of the pound. Today, the GBP/PLN exchange rate came close to 5 PLN again.

The dollar is still stronger, but only slightly

The sentiment on the market after the opening of the New York Stock Exchange was similar to that observed in the morning or early afternoon. Slightly weaker sentiment manifested itself in drops in most of the main market indexes and the appreciation of the dollar.

However, within an hour from the start of trading in the USA, these were not significant changes. Compared to yesterday's closing, the dollar gained about 0.2%, and the EUR/USD quotations were just below 1.13, i.e. about 1.1280.

The pound returns to the game

In the afternoon, however, the pound's appreciation accelerated. The EUR/GBP fell below 0.9, the lowest level since June 18th, while the GBP/USD rose to nearly 1.26, the highest level since June 16th. The source of optimism is the news that a stimulus package will be announced tomorrow, which may even slightly exceed market expectations. Slightly higher demand for the pound is also a consequence of the "super Saturday" in the Islands when in a significant part of the public sphere restrictions were lifted (e.g. bars, pubs).

This is associated with hopes of increasing economic activity. For the UK, the rest of the year will also bring increased trade negotiations, primarily with the EU (the main trading partner), but also with other countries responsible for a smaller portion of the trade. If previous years and negotiations on the terms of the Brexit are to be the indicator of what may happen, then in the following weeks and months, the volatility of the British currency may gradually increase.

If we relate today's increase in the pound value to the zloty, the GBP/PLN quotations clearly increased in the afternoon (approx. 1%), reaching nearly 4.99, the highest level since June 17th. However, given the quotations of this pair, this is within the fluctuations range observed since the end of May. Even narrower ranges were the EUR/PLN and USD/PLN quotations, which today move around 4.47 and 3.96 respectively, i.e. about 0.2-0.3% above yesterday's closing.

The calendar of macroeconomic events for the rest of the day is limited. Tomorrow, however, we can see further fluctuations in the pound due to the announcement of the stimulus package for the British economy.

7 Jul 2020 18:02|Bartosz Grejner

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

7 Jul 2020 14:58

New projections of the EC more pessimistic (Daily analysis 7.07.2020)

6 Jul 2020 18:17

Positive push from the US (Afternoon analysis 6.07.2020)

6 Jul 2020 15:24

Optimism on the market weakens the dollar (Daily analysis 6.07.2020)

3 Jul 2020 14:15

In the fight against the coronavirus, Europe is more effective than the US? (Daily analysis 3.07.2020)

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