Pound sterling exchange rates have maintained their recent strength against both the euro and the US dollar during the course of this month with GBPEUR rates trading just 1% from the highest level seen since the start of the UK’s lockdown in March 2020. Sterling vs the US dollar has also been trading just shy of a 5-year high to buy US dollars with pounds.
Coronavirus measures have been extended for another four weeks after Prime Minister Boris Johnson warned of an increase in the Delta variant. Although unpopular with the Tory backbenchers it does allow more time for more people to be vaccinated which in theory should help to combat the spread of the virus.
There was some expectation that this may have impacted the pound sterling exchange rate but so far it has done little to make any material difference to the value of the pound.
Previously the UK was due to remove all social restrictions by 21st June but with cases rising it should come as little surprise to see such an extension. Indeed, with a 4 week extension this allows a further 10 million doses to be administered.
Tomorrow morning brings with it the latest Consumer Price Index figures for the UK due out at 7am. Rising inflation is often combatted by an increase of interest rates so if we see inflation higher than the expectation of 1.8% year on year then this could see some support for an interest rate hike.
Clearly, the Bank of England has little appetite to change monetary policy at the moment in terms of a rate hike but if inflation starts to increase in the coming months then this could bring forward an interest rate hike later in the year. This is turn could help the pound to strengthen so Wednesday’s inflation data could be key for the short term movement of Sterling.
The euro has remained under pressure vs both the US dollar and sterling as it emerges from its own lockdown measures. On Thursday morning the latest Consumer Price Index figures are due for the bloc. Expectations are lower than that in the UK but are still expected to rise year on year to 0.9%.
The target for the European Central Bank is for inflation not to rise above 2% so like the UK if inflation starts to rise then it could bring forward an interest rate hike for the Eurozone.
Yesterday afternoon the Bank of Spain claimed that the Spanish economy will grow by 2.2% during the second quarter of 2021 with overall growth at 6.2% for the year. According to Reuters the Bank of Spain also ‘see unemployment rate this year at 15.6% vs 17% seen in March.’
The UK and the Commission are still at loggerheads over the Northern Ireland issue and so EC Vice President of Interinstitutional Relations and Foresight Maros Sefcovic and David Frost will be meeting later this week to try and sort out the existing challenges.
This could have an impact on the value of GBPEUR exchange rates so pay close attention to any progress made during the talks due to be held later this week.
We end the week with the latest Eurozone Current Account figures due at 9am on Friday morning. The previous month showed figures of €31bn so anything different could cause volatility for euro exchange rates on Friday morning. If the figures are high this could help to strengthen the euro and anything lower could see weakness for the single currency against both the pound and the US dollar.
In other news, the Eurozone’s industrial output data came in above the estimate according to Eurostat. It came out at 0.8% in April compared to 0.4% which shows things are improving but this data did little to provide the euro with any strength yesterday.
The US dollar has made some small gains against the pound but the movement has been relatively small since the start of June. With President Biden now half a year in to his reign he has been traveling overseas in an attempt to improve relations between the US and many other countries who were treated very differently under the former rule of Donald Trump.
Biden is meeting as the latest NATO summit with 30 other countries with the aims of addressing the stance of Russia as well as China’s ascendency in recent times. Issues such as climate change, security and cyber security are all on the agenda with the aim to put a place in place until 2030. The previous pan was introduced in 2010 and with the world having changed so much in the previous decade it was about time to change the process.
Later this afternoon the world’s leading economy will release the latest Retail Sales data for month on month. The expectation is for 0% change so anything different could cause movement for USD exchange rates later this afternoon.
However, the biggest event on the economic calendar this week will come on Friday evening with the Federal Reserve announce their latest monetary policy statement and decision. Although there is little chance of any interest rate change happening on Wednesday the rhetoric of the accompanying press conference could provide clues as to when and if interest rates may start to move in an upwards direction.
Since the easing of lockdown inflation has started to rise in most major economies and with certain goods having dramatically risen then this could be a catalyst to think about changing monetary policy later on this year.
Therefore, any suggestion of any upcoming changes could provide the US dollar with some strength against both the euro and the pound.
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