The pound has been rising and falling in the last couple of weeks as investors monitor the ongoing developments of the Indian variant and what threat that places on the predicted economic recovery for the UK in the second half of 2021.
Sterling made some limited gains yesterday as Services data released reflected a 24-year high in the sentiment survey of 62.9, where on a reading of 1-100 anything above 50 represents growth.
Sterling and the currency market have in general been quite flat in recent weeks. Pound to euro exchange rates have fluctuated within a range of 1.1486 to 1.1674 over the last month. Movement on GBPUSD is similar with interbank exchange rates fluctuating by less than 3 cents since May 7th.
This might be pinned down to the UK being at bit of a crossroads in many respects as the UK and Western nations approach the end of lockdown measures with much hope that we can turn a significant corner, but lingering and ongoing concern remaining that all might not be as rosy ahead as we expect as we see rising case numbers and new COVID strains.
There is without doubt a generally more positive trajectory ahead with the OECD (Organisation for Economic Co-operation and Development) this week raising the UK growth projections for 2021 to 7.2% from 5.1% in March.
They also raised global growth projections from 4.2% to 5.8%, in a sign of the increased expectation ahead for economic success on the current trajectory. Whilst the UK has now vaccinated 58% of the population with 1 dose, and many other Western nations are powering ahead with their vaccination programs, COVID remains a global problem.
This optimism and progress of Western nations can be contrasted against the fear and worry over spreading variants evidenced by the Indian strain, plus concerns about the lack of global vaccination efforts, with only 11% of the world having received one jab.
There is limited economic data today but the latest US economic data at lunchtime could prove interesting. Yesterday saw the pound lose ground against the US dollar, whilst we saw a slight rise against the euro, this can be explained by some volatility on EURUSD exchange rates where the US dollar rose and weakened the euro.
A repeat of such a trend today on good US data could see GBPEUR rising whilst the reverse may also be true. Speak to your account manager about different strategies to help plan your exchange.
The story for the euro in 2021 has been of a mixed performance weakening in the first 4 months, before a generally better and improving performance in the last 2. The turning point was signs the vaccination program had really got under way, and the European Union has now provided one dose to 39% of its population, a much improved situation.
Another positive for the Eurozone is that international travel and tourism is projected to be opening up in the months ahead, a huge part of the economy for the single currency bloc. Tourism was estimated to be worth €500 bn in 2019 to the Eurozone, with 2020 reported to have seen a 65% drop in activity.
The prospect of this hugely important component of the Eurozone economy recreating wealth, jobs and confidence in the months and the rest of the year ahead is a real plus for the euro.
The optimism is of course caveated by worry and concern ahead too, with eyebrows raised over restrictions being placed on international travel and the threat of further waves of COVID variants threatening such positive movements ahead.
As with other Western nations like the US and the UK, it might be argued we are at an interesting crossroads with real potential for a leap forward into better times but with many concerns remaining.
Portugal was added back to the Amber list yesterday by the UK, disrupting travel plans for thousands. Brits traveling abroad been similarly affected by other European nation’s plans with lack of clarity and extra costs for tests.
Brits hope to be able to travel to France from June 7th but there are currently quarantines in place because of the Indian variant. Spain is allowing Brits in if they have been vaccinated with proof required. For the Eurozone there are still many countries with lockdown measures in place, including France where a curfew is in place which starts from 9pm every evening which will be extended to 11 pm from the 9th June.
This ongoing lack of clarity and stop start as evidenced by the UK governments U-turn on Portugal lately just highlights what we might expect in the coming weeks, as we gently move in the right direction of freeing up international travel but with various hurdles and steps back taken on that journey.
Nevertheless, none of us can doubt the general positive direction of developments this year and for now the market seems to think that any disruption will be more short term, and that ultimately international travel will overall continue to be more accessible.
It will be interesting to see just how the coming weeks pan out and how the ECB (European Central Bank) will take a more positive view or not on the Eurozone economy ahead in their latest meeting next Thursday 10th June.
Clients interested in euro transfers should be aware of the US labour market data today at 13.30 UK time, this could trigger some movement on EURUSD rates that might influence the euro against other currencies.
The long-predicted rise of the US dollar became more of a reality yesterday as data showed Jobless claims dropping, the number of employed people rose 300,000 more than expected and Services data all pointed to rising growth ahead.
The US dollar rose over a cent against sterling pushing the GBPUSD interbank rate down from over 1.42 to below 1.41 with us currently at 1.4082 today’s low. EURUSD dropped over a cent too, falling from 1.2214 down to 1.2120.
Looking at the day ahead we could have very interesting one with next set of important data for the US, the ‘Non-Farm Payroll’ and Unemployment data released at 13.30 UK time.
This is one of the most closely watched data releases for the United States as it shows the changes in employment numbers and gives a real snapshot of how the US economy is performing at any one time.
The US central bank the Federal Reserve or ‘Fed’ also monitor this closely to gauge what possible policy changes might be due in terms of interest rate changes.
Their stance in 2021 has been one of allowing for lower interest rates and continuing their Quantitative Easing (QE) policy. QE is the buying of government debt by a central bank and can keep the currency weaker.
The flipside to this is that as the US economy is roaring back to life, there is rising expectation sooner or later the Fed will be forced to reduce their QE purchase and maybe raise interest rates. It is this suggestion that saw the US dollar stronger yesterday, as investors became less confident that the current stance by the Fed is appropriate. Investors bought the US dollar as expectation grew there will be a taper (reduction) of their QE or raising of interest rates expected ahead.
The US dollar has also been weaker because of Joe Bidens extensive stimulus package which has seen 6 trillion dollars pledged. That is $6,000,000,000,000.00. Another way of expressing a trillion is a million million, not small change by any imagination and this huge spending plan has kept the US dollar weaker, but could be another factor that leads to greater calls for interest rate hikes, in that it will be helping the US economy grow.
It is always worth remembering that the US dollar accounts for over 60% of globally traded foreign exchange, so shifts in economic policy by the Fed, and the resulting movements on the US dollar can influence all manner of different currencies.
Today’s data carries more weight given lats month’s disappointing Non-Farm data, and yesterday’s very strong labour market indicators. If you have a transfer coming up buying or selling US dollars, or indeed many other currencies including the pound, euro and Australian or New Zealand dollar, please get in touch to find out more about how this release could influence the next direction of your rate.
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