The Pound has continued to strengthen against the Euro and US Dollar so far this week, reaching the highest level in almost 4 months of 1.17648 against the Euro yesterday. It is worth noting that the last time GBPEUR broke this level was on the Easter bank holiday Monday, 6th April, where the Interbank level hit 1.17734 for a matter of minutes, however retracted to the 1.15’s in the days following this.
Boris Johnson provided further positivity around the UK’s economic recovery following the COVID-19 pandemic, stating yesterday that the economy would show a steady recovery this year. The UK saw a strong increase in the number of people on UK company payrolls in June. Boris Johnson told LBC radio “you’re seeing the job numbers increasing and I think the rest of this year there will be bumps on the road, but I think you’ll see a story of steady economic recovery”.
There are now many suggestions that the UK is well on its road to recovery, from a variety of economic sectors. The most recent examples being the FTSE 100 gaining by 0.2% yesterday, bringing its gains so far this year to 8.2%, and Aston Martin have posted a 224% increase in sales to car dealerships.
The UK economy crashed by around 10% in 2020, as it suffered one of the highest COVID-19 death tolls in the world, remaining in lockdown far longer than most other nations. Consumer spending is increasing, bars and restaurants are all open for business, and fuel prices are rising sharply, which has led the inflation rate to charge through the Bank of England’s target of 2%, and is currently on course to break through 3%. Many investors are now betting that the Bank of England will raise Interest Rates sooner than the US, despite the fact that the US economy has nearly recovered to its pre-pandemic state already, whereas the UK economy is still on its journey.
Two of the Bank of England interest rate setters, Deputy Governor Dave Ramsden and Michael Saunders, have suggested that we could be coming close to the time for tightening monetary policy, suggesting that the BoE could rein in its bond buying programme sooner than the expected end date of late 2021.
The Bank of England will announce its decision at 11am on 5th August, which could bring a particularly volatile trading period depending on the outcome.
EURGBP ON 4-MONTH LOW COURSE
The Euro has continued along its downward trajectory against the Pound, with EURGBP reaching a near 4 month low during yesterday’s trading session. GFK’s German Consumer Confidence Survey for August was released yesterday at -0.3, lower than the expected reading of 1, and stopped the Euro from regaining any of the week’s losses against Sterling.
Earlier this week, the European Commission stated that it is on course to hit its target of having 70% of the adult population fully vaccinated by the end of Summer. Currently, 70% of adults have received their first dose, and 57% are fully vaccinated. The EU were criticised for its slow uptake on its vaccination rollout compared to the UK and US last year, however after a sharp increase in supplies in the second quarter of 2021, Ursula von der Leyen claims that the EU are now among the world leaders.
The most important data release for the Euro this week will come on Friday when Gross Domestic Product (GDP) figures will be released. The data set covering the last 3 months to the end of June will confirm whether the European economy has managed to avoid a recession and turn a corner in the last quarter. IHS Markit have so far released positive reports for the manufacturing and services sectors last week, suggesting that recovery may have gathered momentum this month. If the latest GDP release shows another contraction, as the first quarter of 2021 showed a contraction of -0.3%, this would technically put Europe into a recession and could cause the Euro to weaken considerably. However, expectation is for this figure to show growth of 1.5% so clients with an upcoming requirement involving the Euro may wish to speak to their Account Manager here ahead of Friday’s release.
FEDERAL RESERVE TO KEEP INTEREST RATES ON HOLD
The Federal Reserve concluded its two-day meeting yesterday evening by announcing that interest rates would be kept on hold at 0.25%, and all members of the Federal Open Market Committee unanimously agreed that the economy is continuing to strengthen. However, Fed Chairman Jerome Powell spoke after the announcement, stating that the Fed were nowhere near considering an interest rate hike at this point. Powell said “Our approach here has been to be as transparent as we can. We have not reached substantial further progress yet” and that “we see ourselves having some ground to cover to get there”. The Fed said that the “substantial further progress” refers to inflation and employment, which must improve before there is any chance of an interest rate hike.
This afternoon, US Gross Domestic Product (GDP) figures will be released at 1.30pm, and economists are predicting a sharp improvement from the first quarter’s 6.4% to 8.5% in the second quarter of 2021. If this comes to fruition, this would be the fastest pace of growth since 1983 and would push the US economy to exceed it’s pre-pandemic size. The US economy has reopened, consumer spending has taken off once again, combined with the US’ rapid response to its vaccination rollout has all pointed towards an expected jump in growth in the second quarter. Even if the Q2 data isn’t as positive as expected, analysts aren’t expecting a significant reaction to any negative news as the US Federal Reserve have made it particularly clear that focus remains on inflation expectations and the labour market.
We will also see Initial and Continuing Jobless claims data, and Pending Home Sales data released this afternoon, so there are plenty of opportunities for US Dollar rate movements. Please get in touch with us today if you have any currency requirements involving the US Dollar.
This blog post is intended to provide you with information on the services Lumon Pay Ltd (“LPL”) offer and should not be interpreted as advice or as a solicitation to offer to buy or sell any currency or as a recommendation to trade. Foreign exchange rates provided therein are for indicative purposes only and are not intended to give an accurate reflection of current currency exchange rates or to predict future movements in currency exchange rates. LPL, trading as Lumon, is a company registered in England with its registered address at Building 1, Chalfont Park, Gerrards Cross, Buckinghamshire SL9 0BG. LPL is authorised by the Financial Conduct Authority as an Electronic Money Institution (FRN: 902022).