JOSEPH WRIGHT
August 13, 2021

STERLING RETAINS RECENT GAINS FOR NOW

There are no economic updates out of the UK today, but next week’s inflation data is already considered to be a potential market mover so do get in touch if you wish to plan around this release on Wednesday.

Having climbed to annual highs against many major currency pairs recently, the Pound has managed to hold onto much of these gains so far.

The Pound to Euro exchange rate is a good example of the Pound’s recent price changes. The annual high, which is also the highest level the Pound has traded against the Euro in 18-months is 1.1833 and for the past week, the pair has traded within a 0.5 cent range. This is a good example of the Pound consolidating towards the top of the aforementioned trading range and could signal that there are further gains for the Pound moving forward.

The Pound is also currently trading close to annual highs against the Australian Dollar, Hong Kong Dollar, Singapore Dollar, New Zealand Dollar, as well as most of the Scandinavian currency pairs.

Sterling of to slow start for June, 0.4% lower against EUR and USD.

The recent boost to the Pounds value has coincided with the opening up of the UK economy, which has taken place before many of its counterparts in the EU for example. The message from the UK government has been one of getting used to living with the Covid-19 virus, whereas other countries have taken a different view with Australia being incomplete lockdown now. This is being reflected in currency values as investors and currency markets anticipate future economic performance.

Yesterday’s economic data out of the UK showed that Britain’s economy grew by a faster rate than expected during June, hitting a 1% growth level. Economic output for Britain remains 2.2% below prior pandemic levels, and the economy dropped by almost 10% during 2020 as it was one of the most hit wealthier nations economically by the lockdown measures.

Those of our readers hoping for further Sterling strength should be wary of the furlough scheme ending in late September, and the Delta variant potentially forcing the government to backtrack on the reopening of the economy. We have seen this already take place in parts of the US, so I think it’s something we should prepare for, and the news would likely have a knock-on effect on the Pounds value.

There are no economic updates out of the UK today, but next week’s inflation data is already considered to be a potential market mover so do get in touch if you wish to plan around this release on Wednesday.

WILDFIRES NOW A MAJOR CONCERN FOR THE EUROZONE

Much of the headlines out of Europe at present are pertaining to the damage and loss of life caused by the wildfires throughout the Mediterranean region of Europe. Not long ago Germany and Belgium were severely hit by floods and now Europe is presented with another natural disaster that has already caused damage and loss of lives, so our thoughts go out to the regions impacted.

There could also be some political fallout from the handling of the natural disaster, with Greek PM Kyriakos Mitsotakis having to defend his government’s response to fires which has continued for over 10-days now with fatalities in the hundreds.

German investor confidence hit the headlines for the wrong reasons this week after it was reported to have fallen dramatically in recent weeks. Germany is Europe’s largest economy, and with consumer confidence hitting a 9-month low due to rising coronavirus cases this could be a sign of further falls to come for the Euro. This is the third consecutive monthly fall of consumer confidence in Germany.

The Euro is also trading around the lowest levels in 4-months against the US Dollar, which is a currency on the ascendency at the moment along with the Pound and the Canadian Dollar. Another bugbear for the Euro has been long term low inflation levels which hinder the European Central Banks’ ability to amend a monetary policy. For example, the inflation levels in the UK have exceeded 2% and there is talk of the Bank of England potentially hiking interest rates and the situation in the US is the same. With low inflation levels within the Eurozone, the ECB is likely to keep interest rates low, and this in turn hinders the Euro’s strength.

Trade balance figures for the Eurozone will be released this morning at 10 am, and GDP figures are perhaps the next key release which will be reported on Tuesday next week.

US Dollar Supported by Federal Reserve Minutes

US DOLLAR STRENGTHENS AS INFLATION CONCERNS CONTINUE

Yesterday it emerged that Producer Prices in the US have hit increased by the largest amount annually in over a decade. The Producer Price index measures the average change over time in the selling prices received by domestic producers of goods and services, and a high figure on the index means that consumers will pay more when they buy goods.

Inflationary concerns have been in the headlines in the US for a while now with pressure mounting on the FED Reserve bank to amend interest rates to try and weather the storm of the increasing cost of living within the US. 

A report earlier this week showed that although the increasing inflation levels slowed somewhat in July, they remain towards a 13-year high on a yearly basis.

The US Dollar has climbed as a result of the anticipated adjustments to monetary policy from the FED Reserve Bank, which is the Central bank within the US. Despite the Pound trading around the 52-week highs against many major currency pairs as previously covered in the GBP section of this report, this is not the case for cable (GBP/USD).

Those of our readers planning on converting US Dollars to the likes of Pounds or Euros have seen their prospects become more attractive recently. USD to GBP has gained by almost 2.5% in the past three months and the USD to EUR pair has climbed by almost 4.5% during the same time frame.

Later today the preliminary Consumer Confidence Sentiment Index will be released which covers economic optimism and the outcome can impact the Dollars value depending on the outcome of the release. Next week Tuesday could also be a busy day for US Dollar exchange rates when Retail Sales figures will be released. Do feel free to get in touch if you wish to plan around this release.

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