Last week has proven tough for sterling as with its major catalyst of its movement being the Omicron variant. Last week, we saw the Pound reach as low as 1.1637 against the Euro and reaching a 12-month low against the Dollar with the week low of 1.3160.
If we look at how well the UK economy has been performing over the last few months, the UK economy barely grew in October, even before the emergence of the Omicron variant. Data released by the national statistics last week showed that the Gross Domestic Product (GDP) has slightly dropped lower than expected from the forecast of 0.4% to the actual figure of 0.1%. That was a sharp decrease from a monthly growth which was 0.6% back in September. This result also showed that the Economy was slightly smaller compared to February 2020 just before the entire country went into its first lockdown. Chancellor Rishi Sunak stated that the government has always acknowledge there could be bumps on the road to recovery and the UK was well placed to recover. However, some economists were caught by surprise as they have forecasted of 0.4%. Some investors say that the UK’s fast rising inflation rate and the spread of Omicron could result in the economy shrinking yet again and if this were to happen then it could certainly take a hit towards the currency. Sterling dipped after the data was released as investors saw another reason for the country’s central bank not to follow through with raising borrowing cost. The Bank of England is currently holding its December policy meeting and due to announce its decision this coming Thursday.
Yesterday, the UK’s alert level was raised after the increased of Omicron cases, the country’s four chief medical officer and NHS England’s national medical director have recommended to ministers that the UK go up to Level 4 from level three. This could result into the country having higher restrictions which could take a hit towards the economy. However, despite the Prime Minister’s growing unpopularity, he has also stated that he will not be cancelling Christmas like last year. This could help the economy from any further reductions, but it is safe to say that this could be another challenging Christmas for all.
Looking at this week’s economic data which could cause some volatility in the market. Tomorrow we will see the UK’s customer price index year on year and on Thursday as stated will have the interest rate news which could cause some major volatility on the market.
Sterling’s weakness causes Euro to increase but is still struggling
The Euro has shown some strength against sterling but has not made any major gains toward the Dollar. By the looks of it the only reason why the single currency has made some bullish momentum towards the Pound was due to the UK’s economic weakness and has got nothing to do with any Eurozone strength.
Last week saw some economic data go in favour of the Euro with the ZEW Sentiment (Zentrum für Europäische) which is the result of the financial market survey proving to be higher than expected as the Data reaches 26.8 points from the predicted 22.4 points, and we also saw Germany’s Customer Price Index data release which remained the same as expected reaching -0.2%. This is only one side of the story however, as the eurozone is majorly suffering from Omicron. Many countries have been affected by this new Variant which has resulted to some countries having their business shut down yet again. France has shut down all their clubs until January and restrictions for the vaccinated in Denmark has been eased on Sunday after 3 weeks of lockdown. Many believe that in order to be able to get out of this pandemic, millions of booster jabs need to be distributed around the bloc to prevent the spread of the new variant.
Looking at this week’s economic data releases, on Thursday, we will see the German PMI data and with Germany being one of the largest contributor towards the Euro, this could impact the currency. Furthermore, we also have the European Central Bank Press conference on the same day which could also cause some market movement.
US inflation could prevent the US Economy from further growth
The Dollar has been the highest performing currency out of the 3. As stated on the previous market report. The Dollar has reached an 18-month high against sterling which indicates that this is the best time to exchange any GBP to USD.
Last week’s unemployment data release has shown yet again why the Greenback has had a very strong economic recovery. The data was forecasted to have the unemployment data to reduce to 218,000 but this certainly over delivered as that numbers were reduced down to 184,000.
As the US economg strengthens, the fight that the US are currently having right now is the increase of their inflation. So far, the US consumer price hiked by 6.2% in October which was the biggest inflation surge in more than 30 years. Some say that having some form of inflation is good for the economy as it shows its strength but having too much inflation could be detrimental towards the market as it could prevent retailers from spending.
Taking a look at this week’s economic data for the US market. Today will be the release to the Producers Price Index month on month which is the average price of goods being bought and sold within the country and out of the country and we also have the Retail Sales data which will be released tomorrow. Theses economic data’s could produce some economic movement in the market, so do keep in touch with your account manager here at Lumon for further information.
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).