Last week, we saw the pound started the week on the back foot against the euro following the bank holiday. Market rate against the euro was 1.1570, however throughout the week we saw the pound regain momentum reaching a high of 1.1670.

Due to a strong vaccine inspired economic rebound, the pound is being tipped to advance against the euro but remain stagnant against the US dollar for the remainder of 2021. Analysis from CIBC Capital Markets shows the UK is in a race to vaccinate its people before the new third wave of infections hit. “Strong consumer led activity, impacting the rate cycle, should provide support for the currency, which should hold relatively steady against the USD but outperform the euro”.

The biggest risk to the pound is the rising tide of the Indian covid variant, which threatens to scupper the UK’s planned re-opening timetable. The Indian variant is believed to be more transmissible than previous variants, which means it can spread fast amongst unvaccinated populations. The more the UK population gets vaccinated the less hospitalisations we will see, which in turn will be a deciding factor on whether the UK re-open its economy as planned (June 21st) or not. If the UK do not re-open as planned, we could see a backlash and pound weakness as the economy is less likely to recover as quickly as markets have expected.

UK Covid Cases Rise

UK Covid Cases Rise

Over the past week, there has been a sustained rise in Covid 19 cases according to new NHS data. However, over the past couple of days, this has fallen which is good news for the pound. The pound’s near-term value will be closely linked to the evolution of the pandemic in the lead up to June 21st and whether we will re-open our economy fully or not.

Having said this, with credit and debit card spend now reaching 96% of the average pre-pandemic level, will an extension of this recovery phase really hurt the pound and our economy to the extent some analysts fear? The majority of businesses who closed during the most recent lockdown are now open and therefore the final easing come 21st June will only have a marginal impact to overall economic activity.

Economists at ING Bank say “compared to the economic boost of the lockdown-easing on May 17 and back in April 12, a 'June pause' probably won't significantly derail the UK's recovery."

British health minister Matt Hancock is keeping his cards close to his chest on this issue “It’s too early to make a final decision on that”. He also said there has been a “very significant” impact from the new variant, which is now the dominant strain in England.

The currency markets move on emotion, as the big investment firms and banks try to predict the future strength of a currency. Keep in touch with your account manager here at Foreign Currency Direct to stay on top of market movements.

ECB Meeting This Week Could Cause Euro Volatility

The European Central Bank is showing a cautious approach to policy, which means it’s unlikely to reduce its quantitative easing programme any time soon. In turn, interest rates are unlikely to rise which reflects a dampened economy and gloomy outlook.

The next major date for the European Central Bank is this Thursday June 10th, so clients who have a currency need involving the euro should be aware of this date. The markets will be expecting a cautious outlook from President Lagarde which could weaken the euros value. Anything unexpected, like an optimistic tone, could strengthen the euro. The likely outcome of Thursday’s meeting will be that President Lagarde and the European Central Bank will continue to view the Eurozone recovery as requiring policy support.

In Germany, the Eurozone’s biggest economy, the Conservative party have won convincingly in state elections. This is a big boost for Marin Laschet who is set up to succeed Chancellor Angela Merkel of the Conservative party. Merkel, in power since 2005 is stepping down after the federal election, leaving the political succession wider open than at any time in decades. This could cause political issues within Germany and the Eurozone as a whole, which in turn could affect the Euro’s value due to political instability.

Keep in touch with your account manager in the lead up to Thursdays European Central Bank meeting, as this could affect the euros value.

Worse Than Expected Jobs Data Causes US Dollar Weakness

Worse Than Expected Jobs Data Causes US Dollar Weakness

US jobs data was released last Friday and came in worse than expected. The US dollar therefore retreated against the Pound, Euro and other major currencies. Market expectations were for 650k jobs created when in fact 559k was the figure.

The US non-farm payroll report casts light on how the world’s number one economy labour market is recovering. A strong reading would have provided strength to the US dollar as it implies the U.S. Federal Reserve may start to consider tapering its quantitative easing programme, which in turn could indicate interest rate rises in 2022. However, this was not the case and could be a factor in the US Dollars strength this week.

Senior Economist at CIBC Capital Markets commented, “The underwhelming employment gain was driven largely by growth in the leisure and hospitality industry, while average wages rose by a strong 0.5% on the month as employers tried to attract workers”. There are currently generous unemployment benefit supplements, which have probably contributed to lower-than-expected employment gains. These supplements are due to end in June so we could see millions of jobs added over the summer.

Any meaningful strength in the dollar will likely arrive when the Fed says it is feeling confident enough to lay out a programme to taper its quantitative easing. The weaker than expected jobs data means the Fed are less likely to raise interest rates and therefore the dollar to strengthen significantly in the near term.

Keep in touch with your account manager here at Foreign Currency Direct to keep on top of market movements.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.