The pound has been very steady for the last couple of weeks against its major currency pairs as it finds comfortable support around 1.1573 GBPEUR and 1.4083 GBPUSD. With no signs of any major news, it seems a though that there will not be any catalyst that could push the pound back up anytime soon.
One of the things which could cause some volatility towards the pound is the long-awaited lifting of the lockdown restriction next week. With the current success of the road map, the final part of the plan is supposed to complete on the 21st of June. However, with the increase of the delta variant (which makes up for 90% of new cases in the UK), Prime Minister Boris Johnson has mentioned that this might be delayed by 4 weeks to allow more people to be vaccinated. He says that it is more about the data rather than the date. He then continues to say that he would like to proceed with the road map but with caution. All eyes will be on the Prime Minister today to find out if he is going to go ahead with lifting the lockdown completely but after talks with the members of his cabinet yesterday, it seems as though that this will be highly unlikely.
Yesterday was the final day of the G7 summit meeting where 7 global leaders (who make up 40% of the world's GDP) meet to tackle global problems such as the pandemic amongst others. One of the discussions which sprung up during the summit was the post-Brexit agreement between the UK and the EU. As tensions continue to grow between the UK and the EU, with the grace period for the Northern Ireland protocol coming to an end by the end of this month, neither side seems to be backing down which does not look good for both parties. According to an interview from the mirror, the Prime Minister will not hesitate to trigger Article 16. This simply is the nuclear option where neither party could suspend or terminate the agreement that is in place over the border. By triggering this agreement, it could cause a serious economic difficulty that is liable to persist.
If the UK nor the EU come up with some form of compromise, we could see great tension from both parties leading towards a trade war. This could cause major volatility towards the currency pair.
Europe’s recovery against the pandemic has shown a great increase despite its slow vaccine rollout at the beginning of this year. This could mean that signs of optimism across the board could help boost the single currency. So far 30% of the EU population has been vaccinated and 17% of the population have received a second jab. Some of the restrictions have also been lifted in some parts of Europe.
In France, the daily cases have fallen by 11,000 and the curfew has been pushed back from 9 pm to 11 pm. In Germany, the daily infection has decreased, and also restrictions for anyone who has been vaccinated, recovered, or have a negative test has been lifted, which simply mean they do not need to be tested to be able to do things such as shopping or get their haircut. In Spain, the number of daily cases has fallen by 2,000 with the Spanish government introducing a traffic light system putting regions in a five-way risk category which allows the government to control the spread of the virus.
Despite all this, the World Health Organisation says that the rollout of the vaccine across Europe is still not fast enough and fears that another variant could arise with restrictions being lifted. World Health Organisation’s Regional Director for Europe Hans Kluge says, "Although we’ve come far, we haven’t come far enough" he also added, "Vaccination coverage is far from sufficient to protect the Region from a resurgence".
With the easing of restrictions across the bloc, another variant could once again creep up which could delay the lifting of the lockdown completely which could affect the economy and weaken its currency. Further uncertainty could also come from the Northern Ireland agreement which was stated in the sterling section.
United States inflation has increased to the highest rate to 5% since May 2008 as the world’s biggest economy shows the strength of its recovery from the pandemic. The Customer Price index also went up to 5% from its annual rate and has increased by 0.2% from April. This has been the highest rate since August 2008. US inflation has slowly been rising since the beginning of the year when it was at 1.4%.
However, with the rise of inflation comes the fear of the price increase, with scepticism towards investors as fears towards supply and demand chain bottlenecks could result in inflationary pressures which could lead to the central bank forcing the federal reserve to slow their stimulus.
However, on the positive side, US stocks have increased with the S&P 500 reaching new heights with traders anticipated that the inflation rise would be temporary. As the US stocks rally up, this could only be good for the dollar as the S&P 500 is comprised of the largest companies listed on the stock exchange and if the US companies continue to rise, it could be good for its economy.
There aren’t many economic data that could cause a lot of volatility towards the dollar; however, tomorrow’s retail sales data will be released which could have some key news that could cause some volatility. If you would like to keep up with the dollar or any other currency, please do not hesitate to contact your account manager for more information.
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