GBP EUR rates have started off the week 0.6% higher in comparison to the open of last week
GBP EUR rates have started off the week 0.6% higher in comparison to the open of last week. A moderately volatile week, as we saw rates drop to a low of 1.16068, before picking up to a high of 1.17168. A similar trend for cable rates can be found, as the mid-week saw rates fall to 1.37442, but within a few days picking up to 1.39131 nearly 2 cents higher. From a monthly view, cable rates are still sluggish, and struggling to reach and surpass the 1.40’s as achieved last month.
Towards the beginning of this week the Bank of England will release their Financial Stability Report, this will provide some insight to the strength and resilience of the financial sector. The Finance Policy Committee will also advise some possible actions to take in order to reduce current risks and mitigate future risks to the stability of the UK’s financial sector. A hawkish and optimistic outlook by the BoE could lead to the pound gaining more strength on other major currencies as we start to exit this year and half long pandemic.
Mid-week we can expect to see a clearer picture on the UK’s inflationary stance, with the release of the Consumer Price Index, Retail Price Index and Producer Prices Index. The figures are projected to be healthy and showing growth, but efforts will remain to keep inflation under control to avoid sharp movements in living costs which dent the consumers. We may see a bullish trend for Sterling, as the Year-On-Year CPI is forecasted at 2.2%, 0.1% higher than previously. James Smith, the markets economist at ING, along with other economists are confident that this is only a short-term increase in inflation mostly due to the reopening of the economy. Once ‘Freedom day’ has arrived the inflation may fade out in the following months. This reduction in inflation may also be attributed to supply chains regaining control and synchronizing once again with the economic cycle.
On Thursday, the UK’s labor force will be examined as National Statistics will release their figures for the Claimant Count and the ILO Unemployment Rate. Both of these measures are closely watched as they are broad indicators of the UK’s labor market, an increase in the unemployment rates suggest a lack of expansion and is bearish for the GBP. The forecasted Unemployment rate is at 4.7%, the same as last year, which may not boast much expansion for the UK. But considering the pandemic has crippled many nations, the UK has done well to keep the rate unchanged also taking in to account a large part of the retail sector has been dormant for the past year.
Germany, the engine room of Europe, start off the week with some inflationary data also being released. The federal Statistics Office of Germany publish their CPI figure, so far forecasted at 2.3% (year-on-year) showing no increase or decrease from last years figure. With a higher weighting, the Harmonized Index of Consumer Prices (HICP) is also forecasted to come in at the same level as last year, 2.1%. Alexander Weber, at Bloomberg, outlines that although these figures do not boast growth and expansion within the EU, they do show core stability. Some may argue that a Harmonized index, however, is limited as it provides a purely quantitative outlook which may not be beneficial for all of the 27 member states.
The EU is still going at a good pace in terms of vaccinations, steadily getting through the population in an attempt to develop strong heard immunity so that travel between all member states can resume. This is key for the single currency, as synergies are created with the open borders which allow free movement of; goods, the labor force and tourists. Professor Neil Freguson, Medical Research Council at NERVTAG (New and Emerging Respiratory Virus Threats Advisory Group) does not hesitate to state that “re-opening borders is well and good for the economy and money flows, but does not help in reducing the spread of a more transmissible variant of the coronavirus”.
A relatively quiet week for the Euro ahead, as smaller data releases fill up the rest of the week with the Eurostat releasing their monthly industrial production figures on Wednesday. The forecasted figure of –0.1%, is seen as negative sentiment for the Euro as the previous figure came out at 0.8%. Moreover, this would suggest deflationary pressure within the Euro area, not the outlook the ECB would want during a time of economic reopening as member states are craving some normality within the economic cycle. Sterling and the USD may rise against the Euro this week, if you have any requirements then contact your account manager here at Foreign Currency Direct.
A relatively slow week for the USD, but on Tuesday we can expected some volatility as the US Department of Labor Statistics will release the CPI figure which is currently forecasted at 0.5%, 0.1% lower than the previous month. These inflationary data releases are closely watched as they can suggest whether the purchasing power of the USD is increasing as wished or decreasing and hence pulling the USD down in comparison to other major currencies. As well as the standard CPI, on Tuesday we will also see the release of an adjusted CPI which excludes food and energy. Similarly to the normal CPI, this adjusted measure is also forecasted to be lower than the previous month, signaling a bearish day for the USD.
New Coronavirus cases in the US and EU are steadily decreasing, based on a seven-day rolling average. This however, is not sufficient enough to satisfy the US Center for Disease Control and Prevention, as the Delta variant is keeping them on high alert due to many areas in the US having relatively low vaccination rates in comparison to other areas in the US. On the plus side, it can be argued that the US vaccination program is operating successfully as the forecasted Retail Sales figure from the US Census Bureau is an improvement from the previous month, so we can assume that consumer spending is returning to pre-pandemic levels as more of the population are vaccinated. A 0.7% increase in Retail sales is likely to boost the USD on Friday, so we may see a market reaction. If you have any USD requirements then reach out to your account manager to set out a plan.