FX outlook: Parky’s quick take – 20 July 2020

July 20 2020

Neil ParkerFX Markets Strategist

View bio

Other insights

View more insights

3 minute read

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

Great Britain

Pound sinks under the weight of poor data

Last week we had monthly GDP (Gross Domestic Product) figures for May, consumer price inflation for June and labour market data for May/June. The figures were, in general, pretty awful, with GDP rising only 1.8% month on month in May, versus expectations of a 5.5% increase. The culprit was services activity, which returned only 0.9% month on month growth, when the sector had been expected to expand by almost 5%.

Inflation reported a surprise rebound, as computer games and clothing and footwear prices surprised to the topside. There was even some positive news from the labour market, with the claimant count falling by 28k in June, but given that it rose by almost 1.6m in between March and May this was small beer. The pound though dropped briefly below €1.10 and $1.25, and was struggling to recover its losses into the end of the week.

This week has three important UK releases due. June public finances data are released on Tuesday, and June retail sales figures are released on Friday. Public finances saw net borrowing of over £55bn in May, so will the June figure look similar, better or worse? As for retail sales, with all non-essential shops having re-opened, will consumers have quickly returned to store, or will activity disappoint robust expectations?

The most important release is likely to be the provisional July CIPS PMI (Chartered Institute of Purchasing and Supply Purchasing Managers’ Index) figures for manufacturing and services due at the end of the week. These are expected to report both sectors back in expansion territory, but how significant will the expansion be and will it last? There are also CBI (Confederation of British Industry) surveys for industry and the distributive trades and the preliminary July GfK (Growth from Knowledge) consumer confidence survey. These may provide some signs of further improvement, but it is doubtful any of this week’s releases will prompt any lasting strength for the GBP.


EUR rallies after grants agreed, will this be a sign of recovery?

Last week saw the ECB (European Central Bank) meet and it chose to stand put and wait for more information. That was hardly surprising given recent past actions and signs that parts of the Euroland economy were returning to normal. However, the ECB, whilst striking a tone of cautious optimism, saw that it has now moved from firefighting phase, to a recovery phase, and indicated that further support would be forthcoming, if necessary.

The figures from Euroland have been interesting lately, with the German ZEW (Zentrum für Europäische Wirtschaftsforschung / Germany’s Sentiment Index) survey last week again recording lacklustre current conditions and some worsening in expectations. Over the weekend, there seems to have been some progress as far as the EU Recovery Plan is concerned, with seemingly an agreement near.

The scale of the grants has been scaled back from the original plan (€390bn versus €500bn), according to reports on Bloomberg. The news on this possible agreement has been received positively by FX (Foreign Exchange) markets, with the EUR rallying once again.

This week’s flash estimates of July manufacturing and services PMIs (Purchasing Managers’ Index) for France, Germany and the Euroland composite will probably prove to be of the greatest interest to FX markets. There is also the release of the German July IFO (Information and Forschung / Germany’s Institute for Economic Research) survey due at the end of the week. Will Germany continue to lag behind, or will manufacturing and services in Euroland’s largest economy finally have gained some momentum?

The EUR broke above $1.14 last week, but didn’t hold above that level for long. Can this week see the EUR sustain any rallies beyond $1.14, which it is back above now, and signal improving confidence in the Euroland recovery?

United States

USD weakens over talks of more intervention

In the US, the Federal Reserve’s Beige Book reported that there were downside risks to the US economy, and as a consequence the risks are that the Federal Reserve will have to increase the amount of monetary intervention over the coming meetings, although perhaps not the one due next week. There is also talk about additional fiscal stimulus, with the President and Majority Leader of the Senate set to meet this week.

The risks of additional monetary and fiscal stimulus have prompted a weakening in the USD over recent sessions, and with the US economy having experienced a set-back in recent weeks, there could be additional support, on top of what’s being discussed, in Q4 or even Q1 2021.

There are no important US releases due this week, with June existing and new home sales data due on Wednesday and Friday intersected by the latest week jobless claims data on Thursday. The jobless claims data has been showing little signs of improvement in terms of the numbers of new claims, although the numbers of continuing claims continues to decline and it is this figure that should be watched closely to see if renewed regional lockdowns prompt a return to higher continuing claims in the weeks ahead.

The USD hasn’t yet been helped by the Q2 earnings season, but we have seen NASDAQ reach new highs, the only index of the three in the US to do so. Increased risk appetite is likely to hurt the USD, but it’s not clear that we’ll see this during this week.

Rest of the world

Likely more loosenings, as a sign of things to come

Last week saw little movement on the central bank front, with the exception of the Indonesian Central Bank who cut their interest rate from 4.25% to 4% on Thursday.

There are a lot of meetings this week, with the week beginning with the Kazakhstan Central Bank. The official rate is currently 9.5% having been cut in April from 12%.

The Nigerian Central Bank announces on Tuesday, Turkey, Ukraine and South Africa on Thursday and Russia rounds things off on Friday.

All the central banks have scope to cut interest rates, although South Africa, Ukraine & Russia may be reluctant having cut rates at the last meeting, and Turkey may be reluctant as inflation rates are running in well excess of their target. With the coronavirus outbreak showing little signs of slowing, further global monetary and fiscal loosening may still be required, in spite of the loosenings already sanctioned.   

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


This article has been prepared for information purposes only, does not constitute an analysis of all potentially material issues and is subject to change at any time without prior notice. NatWest Markets does not undertake to update you of such changes. It is indicative only and is not binding. Other than as indicated, this article has been prepared on the basis of publicly available information believed to be reliable but no representation, warranty, undertaking or assurance of any kind, express or implied, is made as to the adequacy, accuracy, completeness or reasonableness of the information contained in this article, nor does NatWest Markets accept any obligation to any recipient to update or correct any information contained herein. Views expressed herein are not intended to be and should not be viewed as advice or as a personal recommendation. The views expressed herein may not be objective or independent of the interests of the authors or other NatWest Markets trading desks, who may be active participants in the markets, investments or strategies referred to in this article. NatWest Markets will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser; nor does NatWest Markets owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on NatWest Markets for investment advice or recommendations of any sort. You should make your own independent evaluation of the relevance and adequacy of the information contained in this article and any issues that are of concern to you.

This article does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any investment, nor does it constitute an offer to provide any products or services that are capable of acceptance to form a contract. NatWest Markets and each of its respective affiliates accepts no liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this material or reliance on the information contained herein. However this shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.

NatWest Markets Plc. Incorporated and registered in Scotland No. 90312 with limited liability. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. NatWest Markets N.V. is incorporated with limited liability in the Netherlands, authorised and regulated by De Nederlandsche Bank and the Autoriteit Financiële Markten. It has its seat at Amsterdam, the Netherlands, and is registered in the Commercial Register under number 33002587. Registered Office: Claude Debussylaan 94, Amsterdam, the Netherlands. Branch Reg No. in England BR001029. NatWest Markets Plc is, in certain jurisdictions, an authorised agent of NatWest Markets N.V. and NatWest Markets N.V. is, in certain jurisdictions, an authorised agent of NatWest Markets Plc. NatWest Markets Securities Japan Limited [Kanto Financial Bureau (Kin-sho) No. 202] is authorised and regulated by the Japan Financial Services Agency. Securities business in the United States is conducted through NatWest Markets Securities Inc., a FINRA registered broker-dealer (http://www.finra.org), a SIPC member (www.sipc.org) and a wholly owned indirect subsidiary of NatWest Markets Plc.

Copyright 2020 © NatWest Markets Plc. All rights reserved.