This week has seen more positive movements for the pound which has found support above 1.15 mark, hitting a weekly high yesterday of 1.1595. Sterling now looks poised to test the 1.16 barrier which was last reached over two weeks ago.
The reopening of outdoor hospitality across the UK has provided positivity for the UK economy with many analysts expecting a sharp increase in economic activity over the next quarter. The Confederation of British Industry (CBI) expects private sector activity to grow 32% in the next three months which would mark the strongest predictions for growth since June 2015. Last month UK Private sector activity rose by 24%, according to CBI.
"Economic growth appears to be poised for lift-off over the summer, but this is a recovery that will be felt differently across sectors: while the outlook has improved considerably across the business & professional services and manufacturing sectors, consumer-facing firms seem to anticipate trouble in getting off the ground," Alpesh Paleja, lead economist at CBI, said.
With GBP/EUR trading just below 1.16 at the time of writing, many will now turn their attention to the events of today which have the potential to cause volatility. The Bank of England monetary policy accountment is expected at midday today. Commentators are expecting that we may see the central bank discuss ways to slow down the current rate of bond purchases for the rest of the year. The UK’s £875 billion bond-buying program is set to expire at the end of the year, but if the central bank continues to buy bonds at a current rate of £4.4 billion a week, it will reach its target by the end of August.
While an easing back of its purchases would mean the program would run out at the intended date, it would also suggest that the BoE is unlikely to increase its final total further as the UK economy continues to recover. Chief Economist Andy Haldane (who is set to step down from the monetary policy committee next month) said earlier this year that the UK economy is poised like a ‘coiled spring’ with household savings expected to power a spending boom. The BoE is not expected to change interest rates from the current level of 0.1%, however, any deviation from this could cause volatility for GBP.
Also today we will see the country go to the polls for local and national elections. Eyes will be watching the vote in Scotland which could fuel further support to the Sottish independence movement with a considerable SNP victory.
"The May elections will be the first proper indication of whether independence support has shifted and could lead to markets pricing in Scottish independence more than previously," said Jordan Rochester, a strategist with Nomura. The outcome of the vote may not be known until the weekend; therefore, the full impact on the market may not be experienced until Monday. Rochester also stated that ‘If a country accounting for 7.5% of the UK’s GDP decides to go its own way, it matters for the market’.
The euro has lost ground against both sterling and the dollar throughout this week’s trading with EUR/USD slipping below the 1.20 resistance level yesterday. EUR/USD sat at 1.198 during yesterday’s low point and was just into the 1.20s at the time of writing.
Despite a negative start to the week for euro exchange rates, there are positive signs for the eurozone economy as a number of countries look to start lifting lockdown restrictions. A step up in the Covid-19 vaccination programme and a drop in infection rates has meant that Germany will be moving to relax restrictions for those people who have been vaccinated, France will begin to lift more restrictions from 19th May with the reopening of non-essential shops and outdoor hospitality, and many Italian regions relax restrictions from Monday on businesses including restaurants, bars, and cinemas.
The EU has also recommended easing COVID-19 travel restrictions next month to let foreign travellers from more countries enter the bloc, hoping to boost the stricken tourism industry this summer. New proposals from the European Commission revealed on Monday, would allow in fully vaccinated foreign citizens from several countries including the UK.
In the US this week, treasury secretary Janet Yellen suggested that interest rates may have to rise in the future to keep a lid on the growth of the US economy brought about by the trillions of dollars of government fiscal stimulus spending.
Since the Covid-19 pandemic broke in March 2020, Congress has allocated $5.3 trillion in stimulus spending. The Biden administration is currently pushing an infrastructure plan that could see another $4 trillion spent on a variety of longer-term projects.
Yesterday saw the release of monthly PMI data from the US services sector which came in at 62.7, slightly below the forecast of 64.1. This shows a deceleration from last month’s reading which was a record high. However, suggests the outlook for the US services sector remains positive.
GBP/USD rates have struggled to find much support above the 1.39 threshold but were sat just above the 1.39 level at the time of writing. With the dollar recovering against the euro and holding its ground against sterling, key data released today could have an impact on where the dollar moves next. Today we will see the release of continuing and initial jobless claims in the US with initial jobless claims forecast to read 540K, any major deviation from the forecast could produce volatility for the dollar. Non-farm pay roll data will be realised tomorrow and is forecast at 978K.
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