On Monday we see the latest change in guidance as people can now visit others in their homes and pubs welcome customers indoors once again.
The news last week that the Scottish National Party have also been unable to form a majority has also meant that the likelihood of a Scottish referendum coming soon has been put back further. This has helped the UK’s political landscape and provided more stability which has caused the pound to improve across the board.
The UK’s growth forecast has also been increased earlier this week with the Bank of England forecasting growth of 7.25% this has also provided some much needed support for Pound Sterling exchange rates.
The central bank also said yesterday that it will be slowing the pace of its current bond-buying programme but that it would not be reversing its current stimulus plans.
Another interesting piece of data published on Wednesday showed that the UK imported more goods from outside of the European Union than it imported from the single bloc since the records began back in 1997.
With Brexit having finally been agreed nearly six months ago there are still concerns over the current plans. According to reports, France is attempting to block a deal between the UK and the European Union over financial services. This is in part due to the current stance of fishing rights in UK’s waters and having seen the recent issue in the waters surrounding Jersey it will be interesting to see whether or not this issue can be quickly resolved. The current financial services deal has still yet to be fully ratified between the UK and the European Union since Brexit and it will still need to be approved by all 27 nations involved including France.
The euro has staged a fight back against the pound during the course of this week but has only been able to make some small gains vs the pound. This could be attributed to Economic data in the bloc’s largest country Germany has come out better than expected as the lockdown status appears to be easing in the near future.
Whilst the Eurozone is behind the UK in its timeline for opening up the economy from lockdown, the scientific data appears to show that things are moving in the right direction. Therefore, with the UK and the US having announced some very positive data for their respective economies, it could be just a matter of time before the Eurozone starts to reveal a similar pattern which could provide the euro with some strength.
The European Commission has also announced this week that it has revised its growth forecasts upwards from 4.3% in 2021 to 4.4% next year. This is compared to its previous prediction made back in February of 3.8%. They also went on to suggest that although the speed of progress will be different across the bloc Germany is likely to return to pre-pandemic levels before the end of this year. It was also predicted that France will get back to pre-pandemic levels by the early part of next year and Italy and Spain will return to their levels by the end of 2022.
As we look forward to next week the euro exchange rate could see a busy day on Tuesday with a number of major economic announcements. Employment change as well as Trade Balance figures are published at 10am as well as year on year GDP figures.
Year on year data is expected to come out at -1.8% so any change could see a lot of movement depending on whether the news is positive or negative so make sure you’re well prepared to move quickly.
The US dollar has been under pressure against the pound getting close to reaching 1.42 recently but had ended the week in a stronger position than where it first started.
The impact of the cyber attack on the oil pipeline in the US caused issues for a number of states with emergency powers introduced by the US government in order to increase supply which began to run low in many areas in the US. However, this issue appears to have resolved itself and so the dollar has also managed to fight back as well.
The major news in the US this week was the much better expected release of US inflation which hit 4.2%. With the Fed target at just 2% this was well above the figure and this creates an argument to consider increasing interest rates. Clearly, there is little appetite for a rate hike in the near future but if inflation continues to remain much higher than the desired target then the Federal Reserve could be left with little opportunity but to consider amending monetary policy to control the problem.
There is a saying in the market that when the US sneezes the world catches a cold so if the Fed acts later in the year this could have a domino effect on both the Bank of England as well as the European Central Bank.
Later this afternoon the US release the latest US Retail Sales data for April. The data is expected to show growth of 0.7% month on month so anything different is likely to cause volatility for the US dollar.
Moving the focus towards next week and there is little economic data due out in the US so eyes are likely to remain focused on what is happening elsewhere.
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