CRAIG INCE
August 2, 2021

GBP SEES FURTHER SUPPORT BY EASING OF INTERNATIONAL TRAVEL RESTRICTIONS

The BoE has long been tipped to be the first central bank to taper its COVID-19 monetary policy guidelines.

Yet again Sterling has continued its remarkable run over 2021 and this week could again see the pound make further gains against its peers. The UK COVID-19 situation continues to improve underpinning the pound. This week sees 2 data releases of key importance, Thursday sees the Bank of England hold their Monetary policy meeting.

Could GBP bounce back from 2-year lows against the EUR?

Any news hinting towards the rise in interest rates could see further gains for the pound. The BoE has long been tipped to be the first central bank to taper its COVID-19 monetary policy guidelines. The Pound found further support by news that the UK would ease international travel restrictions. Boris Johnson announced plans to scrap quarantine for fully vaccinated EU and US arrivals, a move that many hope will boost the UK’s summer tourism industry. Sterling briefly hit a two-month high against the Euro of €1.1763 but soon retreated to the €1.174 region, where it was sat in a comfortable range for the rest of the week.

This morning Markit will release their PMI figures for July The Manufacturing Purchasing Managers’ Index (PMI) measures the activity level of purchasing managers in the manufacturing sector. A reading above 50 indicates expansion in the sector below 50 indicates contraction. Investors watch this data release closely as purchasing managers usually have early access to data about their company’s performance, which can be a key indicator of economic performance. A higher-than-expected reading should be taken as positive for the GBP, while a lower-than-expected reading should be taken as negative for the GBP. The rumours are the figures are unlikely to differ however any shock figures which deviate from the 60.4 forecast could further cause the pound to strengthen.

EURO STUMBLES AFTER BUSINESS OPTIMISM IN GERMANY FALLS SHORT

The Euro stumbled at the start of last week after business optimism in Germany missed expectations. Germany known as the powerhouse economy of Europe, the Euro is often volatile to news coming out of the country.  Further News that the EU had reached its vaccination target, with 70% of adults in the EU having had at least one jab, lifted the Euro on Tuesday. However as mentioned in the Sterling section above this was short lived, with the UK’s announcement of relaxed restrictions saw the jump in Sterling and a slump in the Euro. The Euro continued its bearish trend as consumer confidence in France and Germany both came out below forecasts. Additionally, EUR investors were reluctant to place any aggressive bets in the run up to the interest rate decision from the Federal Reserve on Wednesday evening. The Fed’s dovish announcement caused the US Dollar to weaken, which provided some support for the Euro due to its negative correlation with the ‘Greenback’.

Sterling Breaks Through 1.17 Barrier Against the Euro

Last week saw many riots and protests across the Eurozone, France Switzerland and Italy all had demonstrations across their countries. In France around 200,000 protesters were reportedly demonstrating against the new rules that vaccination cards or a recent negative Covid-19 test are to be made compulsory for those wanting to visit cultural, sporting and social events. In Paris there were scenes of violent clashes with police In Switzerland 4,000 people gathered in Lucerne to protest against similar guidelines being placed on them. These protests could be worth keeping an eye on as vaccine and restriction adherence across the Eurozone could be directly affected.

This morning sees German Manufacturing PMI data released, any weak readings could see the Euro start on the back foot this week.

US/China Trade War set to escalate

FED CHAIRMAN ANNOUNCEMENT PUTS A DAMPENER ON THE US DOLLAR

Last week saw a mixed bag of news for the US dollar. Jerome Powell, the Fed Chairman announced that “I think we’re some way away from having had substantial further progress toward the maximum employment goal. I would want to see some strong job numbers and that’s kind of the idea.” This statement put a dampener on the US dollar as policy change may take some months before changing.

The Fed is expected to start winding down their quantitative easing programme in September, any deviation from this could provide volatility to the currency. Inflation figures in the US will also provide key information into the stance of the Fed and affect the US dollars value. If inflation rises, this will put pressure on the Fed to take action regarding interest rate levels.

Later today we will get the results from the latest U.S. ISM Manufacturing Purchasing Managers Index. This index asks questions of purchasing and supply executives in over 400 industrial companies. This is a sentiment driven report as it calculates the percentage of positive responses received. A stronger than forecast reading is generally positive and a weaker than forecast reading is viewed as negative.

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