July 23, 2021

POUND REMAINS STABLE, WHICH WAY NEXT?

Covid rates have continued to climb in spite of the recently dubbed ‘Freedom Day’.

Covid rates have continued to climb in spite of the recently dubbed ‘Freedom Day’. With in excess of 1 million people currently in self-isolation this is starting to cause problems in certain parts of the economy.

Many schools around the country sent children home and shut their doors before the end of term. Latest figures of daily cases is just above 44,000.

Some businesses have highlighted the issues regarding self-isolation which has meant a lack of staff in shops, restaurants and other hospitality venues. In effect, jobs that cannot be carried out from home.

However, in terms of the impact on the value of Sterling this has done little to cause problems for Sterling.

Over the course of yesterday the pound had made a slight recovery from a 3 week low against the Dollar, and a two week low against the Euro.
On Wednesday it was announced that the UK has now spent a record £8.7bn on interest. However, overall borrowing is still lower than what we saw in June 2020.

These headline figures are concerning but if we delve deeper in to the reports the debt servicing costs compared to GDP are still relatively low.

What is of concern though is that the government’s debt currently stands at 99.7% or £2.2tn which has not been seen since the 1960s. This means that the Chancellor has little room for many more changes before we go over 100% of GDP.

Tomorrow morning brings with it the latest set of Markit PMI data for both Manufacturing and Services data. Both are expected to see a small drop compared to the month before but if the drop is higher than expected we could see Sterling tail off towards the end of the week.

As we go into next week there is little UK economic data due out before the end of the month so the Pound is likely to be dominated by the political landscape and commentary over the next days.

With the NHS having been given a 3% pay rise this is lower than what was expected given the ordeal many have experienced since the start of the pandemic.

Combined with Boris’ u-turn on self-isolation after his recent close contact the ratings surrounding Boris are currently dwindling, which could cause problems for the Pound.

ECB KEEPS MONETARY POLICY THE SAME 

Yesterday afternoon the European Central Bank announced its latest monetary policy decision with no change made as expected. This caused the Euro to weaken against both the US Dollar and the Pound largely in part owing to the subsequent press conference held by ECB president Christine Lagarde.

In her speech Lagarde said that ‘we expect to see inflation rise further in the coming months’ but did claim that ‘by early 2022, the impact of temporary factors on inflation should fade out.’

The ECB president did suggest that lockdown measures could remain in the fourth quarter of this year so don’t rule out another lockdown for both here in the UK and in Europe depending on how the pandemic continues.

This morning we see the latest release of the Markit PMI data for both Services & Manufacturing data for the Eurozone.

Manufacturing data is due to show a fall compared to the previous month whereas Services data is due to show an increase so any changes to the expectation could cause volatility for Euro exchange rates when the data is released at 930 this morning.

The Euro has been struggling as of late vs both the Pound and the US Dollar which has created some good opportunities to buy both currencies.

For example, since the turn of the year the Pound has gained by approximately 6% or the difference of £10,350 on a currency transfer of EUR200,000. One of the major reasons for the Pound’s recovery can be attributed to the Brexit deal which was finally agreed at the end of last year.

Clearly there are still ongoing problems with the deal but at least a deal was done and this has meant there is no longer the risk of a cliff edge for the Pound.

US DOLLAR GAINS VS THE POUND AND THE EURO

The US Dollar has continued to go from strength to strength in recent weeks against both the Pound and the Euro.

Indeed, the US Dollar is currently at its best level to buy Pounds since early February creating some excellent opportunities to buy Pounds with US Dollars.

US President Joe Biden has put the country back on the right path since the start of his tenure and this has helped give the US Dollar a lot of strength since the turn of the year.

However, yesterday afternoon poured some cold water on Biden’s recent claims that the economy is improving when we saw  the latest announcement of US Jobless Claims which came out at 419,000 new claims compared to the expectation of the estimated 350,00 and higher than the previous measure of 368,000.

This economic data includes new people filing for state unemployment insurance and if the figure is high then this will typically weaken the US Dollar and this is what happened in yesterday afternoon’s trading session.As we end the week the US economy will announce the latest PMI data for both Services and Manufacturing data. As with the UK & Eurozone who are also announcing the same data any deviance from the expectation could cause volatility across the markets so be prepared to move quickly if the data throws up a surprise.

As we move towards the end of the month the biggest market mover for the US Dollar could come on Wednesday evening when the US announce their latest interest rate decision.

As the bank of the world’s leading economy other economies are likely to follow closely the announcement and the statement due to be held afterwards for hints as to what they may look to do in the future.

The Fed have already suggested that inflation is something which needs to be focused on so next week could potentially cause a lot of movement on exchange rates.

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