The Pound has already rebounded significantly in the last day or so, thanks to a statement from UK Prime Minister May that she was aiming for a softer Brexit. But, as currency traders know, it’s not about what one expected event might do to the exchange rate but rather about assessing risk. Friday’s economic data will provide some insight into how much risk there is of a “hard” Brexit being enforced and of further economic damage. And then the focus will shift back towards Theresa May at this week’s EU summit, where she is expected to present her new proposal for Britain’s future trade relationship with its European neighbors.
What about on a wider scale? What can we expect from Europe?
Tough to say with any sort of certainty, but there are certain trends that are becoming more obvious as time goes by. These trends suggest that currencies will continue to weaken against the dollar until they reach a point where they match up with pre-crisis levels — around 1.40 versus 0.80. This would suggest that the pound has already hit this level, but the euro hasn’t.
The US unemployment rate being better than it has been in years at 7% is also helping push things along. The markets expected this number to be 7.2%, so there has already been some improvement for reasons unknown. The fact that it is less than 0.1% away from the Fed’s target is also a positive sign and is helping to push the dollar higher.
Are you expecting the GBP/USD to go any further?
The pound has already rebounded significantly in the last day or so, thanks to a statement from UK Prime Minister May that she was aiming for a softer Brexit. But, as currency traders know, it’s not about what one expected event might do to the exchange rate but rather about assessing risk.
Friday’s economic data will provide some insight into how much risk there is of a “hard” Brexit being enforced and of further economic damage. And then the focus will shift back towards Theresa May at this week’s EU summit, where she is expected to present her new proposal for Britain’s future trade relationship with its European neighbors.
The Pound has already rebounded significantly in the last day or so, thanks to a statement from UK Prime Minister May that she was aiming for a softer Brexit. But, as currency traders know, it’s not about what one expected event might do to the exchange rate but rather about assessing risk.
So how can we play this?
Well, if we were to look at something like the EUR/USD, we would be able to see that it has been falling over the last month. That’s entirely understandable, given what I said above. There is no reason why it would do anything else — or at least not for now. This means that we should be looking at something like GBP/USD. The same logic applies here — it’s a way of speculating on further weakness in the euro against the pound ahead of NFP.
That’s because there are reasons to believe that this will happen. The euro is somewhat overvalued as it is, so this could lead to further weakness in the pound. The US NFP is one of the most important economic numbers and will likely be watched by markets and news outlets all over the world today; so it could see some early momentum.
But what about Aussie dollars?
The Australian dollar has been hovering around parity for a long time — just below AUD1.02 — but with the AUD quite strong in recent years, we have been able to see that there are reasons to expect its weakness ahead of NFP. This makes sense intuitively as it’s already weaker than the euro by a decent margin, and it has fallen 0.
