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STERLING CLIMBS AS PRESSURE INCREASES ON THE BANK OF ENGLAND

Sterling exchange rates spiked on Wednesday morning, owing to an early morning release of economic data which helped currency pairs such as the Pound to Euro exchange rate break above their recent trading ranges.

UK inflation levels in June increased to 2.5% on an annualised basis which was higher than expected, pushing the GBPEUR rate as high as 1.1759 at its highest level on Wednesday. The Office for National Statistics (ONS) released this data early on Wednesday surprising the markets, as there had been an expectation of 2.2%, which would also have been an increase on the 2.1% annualised figure reported in May.

The climb for Sterling helped GBPEUR hit its highest levels since early April, and this climb is significant as it gave Sterling sellers the opportunity to convert Pounds into Euros within 0.5 cent of the best levels in almost 18-months.

The reason for the increase in Sterling as a result of increasing inflation levels is it’s put pressure on the Bank of England to consider options to quell the increasing inflation levels, such as hiking interest rates and easing off of its asset purchasing programmes.

Since Wednesday there have been two key Bank of England officials that have alluded to tapering the UK’s stimulus packages, with interest rate-setter Michael Saunders and BoE Deputy Governor Dave Ramsden both suggesting the time for action is approaching. 2% is the BoE’s target level and the current base rate is 0.1% which is a record low.

Financial markets are betting on an increase in 2022 so this topic is worth following if you are watching the Pound’s value.

After a slight drop off in the Pound’s value yesterday, which isn’t unusual after a steep climb like we saw on Wednesday, Sterling once again was provided with a boost after June jobs data also came out better than expected. The number of employees on British payrolls jumped in June and hit the highest levels since the issue of Covid-19 begun. This kind of positive update coupled with increasing inflation and the comments from the aforementioned BoE members has created a bullish outlook for Sterling. There are no key economic updates out of the UK today, so sentiment will likely be the main driver for Sterling exchange rates.


EURO CONTINUES TO DROP IN VALUE AGAINST MOST MAJOR CURRENCY PAIRS

Our thoughts go out to our German based clients and anyone else impacted by the severe flooding which has unfortunately cost many their lives, with many still missing. The clean-up and rebuilding will have a knock-on effect to the economy, and it is expected to result in the highest number of insurance claims in almost 10-years.

With Germany being the powerhouse of the EU there could be knock-on effect to the EU as a whole and we wish all effected our very best.

The natural disaster has come at a bad time for the Eurozone where stagnant inflation levels and increasing unemployment rates are hindering the growth of the region. This week there have also been several protests against covid measures, most notably in France and Greece which could be a setback for the Eurozone economy also.

As mentioned in our GBP section the Euro is trading around some of the lowest levels against the Pound in around 18-months, and it’s not just the Pound that the Euro is losing value against. The Swiss Franc, which is generally considered a safe haven currency has climbed to a 7-month high against the single currency recently as markets remain risk adverse.

Yesterday there was an update from European Central Bank policy maker Ignazio Visco suggesting that the ECB should keep policy ultra-easy to support the economic recovery within the Eurozone. He also touched on how he thinks EU based financial markets should be insulated from increasing interest rates in the US. The next policy meeting for ECB policy makers is next week and the main focus is likely to surround inflation levels, with 2% the target and it’s expected to take years before this level is reached according to analysts.

Trade balance and inflation figures will be released this morning at 10am for the Eurozone, with the June figure expected to show 0.9% which is considerably below the 2.5% we saw out of the UK earlier this week.

FED RESERVE IN NO RUSH TO TIGHTEN ITS MONETARY POLICY

US Dollar exchange rates dropped off slightly yesterday after the chair of the Federal Reserve Bank, Jerome Powell stated that he’s in no rush to tighten monetary policy at the US central bank. Pressure has been mounting due to increasing inflation levels as previously covered within our daily market reports, but yesterday he stated that it would be a mistake to act prematurely. This is a reference to both hiking the base rate of interest within the US and also tapering the current bond buying programme which was set up to stimulate the economy.

Comments from Fed Chairpersons have the potential to move exchange rates, especially as the US is the strongest economy in the world and yesterday’s dovish remarks resulted in a slight sell-off for the US Dollar. This resulted in the US Dollar dropping off from its 3-month high against the Euro although towards the end of the day there had been a slight recovery.

If you wish to be updated regarding short term price movements do make us aware, as yesterdays USDEUR downward movement is a good example of how some opportunities can be short term in the currency markets.

It could be a busy afternoon for US Dollar exchange rates today as at 1.30pm Retail Sales figures are due for release and this has the potential for high volatility depending on whether the figures meet or exceed expectations. If you wish to plan around this release don’t hesitate to get in touch. Do bear in mind that the current rate of cable (GBPUSD) sits in the 1.38’s which is around 4-cents from the annual high, and as covered in our previous reports cable has struggled to break above 1.40 and consolidate above this threshold long term for around 5 years now.

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).