- E.U Stimulus Package Impact
- Improving Manufacturing Activity
- British Pound Defensiveness
EUR/USD and GBP/USD pairs are flying high in the forex market amidst dollar weakness across the board. Trader’s sentiments on the greenback have taken a significant hit in the wake of massive riots across the U.S following the brutal killing of George Floyd.
Similarly, the EUR/USD pair has rallied to two months highs. The rally has come at the backdrop of traders reacting to reports the European Union is closing in on a massive stimulus package to steer the struggling Eurozone economy.
Germany preparing for a €50 billion to €100 billion stimulus package to boost the economy is one of the developments behind EUR strength against the dollar. In addition, economic activities across the trading block have improved significantly as countries continue to ease restrictions imposed to curb the spread of the coronavirus.
IHS Markit/s Manufacturing Purchasing Managers Index recovered in May to 39.4 after plunging to 22-year lows in April to 33.4. The reopening of economies across the Eurozone as well as an uptick in economic activity should lead to further strengthening of the Euro, likely to send the EUR/USD pair higher.
British Pound Resilience
The GBP/USD pair also continues to benefit from a weakened U.S dollar amidst upheavals in the U.S. The pair has rallied to four weeks high as the dollar remains under pressure following riots in the U.S against police brutality.
A strengthened British pound also comes at the backdrop of the Bank of England Governor Andrew Bailey reiterating they are not considering introducing negative interest rates to cushion the struggling economy. Likewise, the opening of the economy following the COVID-19 pandemic will offer support to the Pound that came under pressure at the peak of the crisis.
However, Pound strength could be weighed down going forward by many factors, key among them being Brexit standoff. Speculation about negative interest rates could also take a toll on the Pound against the U.S dollar.