The fall in sterling's value certainly comes as a shock considering that the pound earlier this year was the best performing currency against all the G10 countries.
At time of writing, we see GBP/EUR at a fresh 6-week low of 1.1508 with the largest trough seen yesterday at 1.1473.
Just like many of the current events this year, most of it is down to COVID-19 and associated vaccines. Astra Zeneca (AZ) has had ties to potentially increased blood clot problems and alternative vaccines are being implemented to ford the gap. Despite the fact that recent reports show that only 1 in a 1m people have died from taking the vaccine, the currency markets have the potential to move just as much on rumour as they do on fact which appears to be occurring here.
Alongside these issues, when it comes to vaccinations, the eurozone are no longer the hopeless, dawdling Bloc that had such a delayed vaccine rollout. France have ramped up their vaccine supply and are estimated to be hitting 10m vaccinations a week within the next few weeks on their current trajectory. This, unfortunately, may not bode well for GBP/EUR. Amongst the Brexit deal settling in to the UK’s mainstream political background, it was the disparity between the UK and Europe in terms of vaccination speed and economic recovery that chiefly provided the catalyst for the 5%+ growth the currency paring has seen so far this year. Now that the immunisation difference is reducing, it may also mean that the euro may continue to claw back some lost ground against the pound.
Sterling will also not receive any support from any economic data this week as it has been a very quiet week for the UK with only a couple of events next week. These come in the form of the Office for National Statistics (ONS) unemployment rate which is expecting a slight rise from the previous 5% to 5.2%. Small movements are also expected from next Wednesday’s CPI which is predicted to double from 0.4% to 0.8%. Unemployment rate generally carries more weight in terms of its propensity to shift the currency in question so any deviation away from these levels could generate some volatility.
The eurozone on the other hand, will see ECB President Christine Lagarde’s speech this afternoon about its economic forecast and recovery plans moving forwards for 2021. Whilst decisions are still taking place surrounding how to spend the increased budget of the economic recovery stimulus package, the tone could be a bullish one if there is positive sentiment surrounding financial recuperation within Europe. However, with Germany on the cusp of going into a full lockdown and France having entered another recent one, it many still be a while before the powerhouses of the bloc have the ability to bounce back. As a result, the euro could be shacky surrounding this announcement so certainly an event to watch if you are in the market for euros.
A couple of other smaller events that could peak the interests the euro buyers and sellers will be German CPI on Thursday which is expecting to remain unchanged at 2% and next Thursday will bring the ECB interest rate decision. This would in normal circumstances be a significant release but with the current historical low rates and with few plans to shift them, it may likely be a non-event.
With GBP/EUR experiencing one of its more volatile periods recently, it may be worth reaching out to your account manager at FCD for an update on your trading position.
GBP/USD has also taken a southward direction with levels at time of writing at 1.3746. Cable is now down 5 cents off the 3-year highs it saw back in February with rates at 1.42. Although this doesn’t seem to be because of USD strength but more from GBP weakness considering that the EUR/USD rate has been climbing for the last few weeks due to some solidarity from the eurozone’s single currency.
The EUR/USD currency pairing, which at the start of the month saw mid-market levels in the 1.17’s has now perked up 2.5 cents showing the resilience the euro has had even against the likes of the US dollar which, owing to its safe-haven status, performs well in times of uncertainty.
This is very surprising considering the optimistic national statistics that are coming from the US. Later this week, jobless claims are expecting a large drop-off with the previous 744k claims slowing to 700k which was followed on by last month’s ADP employment change which saw a rise from 176k to 517k new jobs enter the market. This shows financial expansion and usually constitutes as a driver for the currency in question which it appears the USD is yet to benefit from.
In addition, retail sales figures on Thursday are predicting a rebound from a previous 3% contraction to 5.9% growth. This is then bolstered by Friday’s Michigan consumer sentiment index which is expecting figures to improve from an already impressive 84.9 to 89.6. Any recording above 50 represents optimism which essentially means that in the US there is an underlining confidence that economic conditions in the US are going to bounce back robustly and could mean that USD rates could start to gain in the coming months.
This would not be surprising considering that president Joe Biden is well on track to reach his revised pledge to vaccinate 200 million Americans within his first 100 days of tenure. Above most events at present, vaccination speed seems to be one of the most effective ways of boosting the currency in question, thus, any clients involved in USD transfers may wish to consult FCD for a review of the best way forwards to mitigate against any adverse market movements.
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