Market Update 07th-June-13th-June
Where you will be able to keep up to date with all the latest changes in the currency market
Over the past week we have seen the U.K continue its recovery from lockdowns. Boris Johnson outlined that despite increases in Covid-19 cases, hospitalizations and deaths remain low and there is currently “no reason” for delaying the full re-opening of the economy on June 21st. GBP hit a three year high against the US Dollar in the early parts of the week, but inflationary fears from increasing house prices and increase in travel restrictions helped push the pound back over 1% from this point. We did see a three-month high against the Euro towards the back end of last week.
We saw UK Manufacturing PMI hit a record high and also UK service sector growth was at the highest level since 1997. Over the next week, we will be monitoring the increasing cases seen in the United Kingdom for Covid-19, and whether public pressure could see the full opening of the economy pushed back. We also have GDP data out later in the week and the Bank of England is also set to release a discussion paper on whether there is a possibility that it issues a new Central Bank Digital Currency to run alongside cash and bank deposits all of which could affect the pound..
Over the past week we did see the Euro rise to a three-year high against the US Dollar as the Dollar continued its fall against most major currencies. As the most globally traded currency pair the Euro will directly benefit from a weakening in the US Dollar. We did see however towards the back end of last week a lot of these gains were eroded. This morning German factories have reported a drop in orders – another sign that supply shortages are causing ructions.
Orders fall 0.2% in April, compared to estimated 0.5% gain. The Largest Eurozone economy is centred around large manufacturing so this fall could be detrimental for the economy moving forward. Crucially this week we have an ECB interest rate decision. Any suggestion the rates move back towards zero or into positive territory, we could see the Euro strengthen to a new three-year high against the US Dollar and regain against the Pound, where we saw the Euro drop to a three-month low on Friday. If rates are kept negative it is expected this could further weaken the Euro as investors seek investment in countries where they will see higher returns.
Last Thursday we saw a flurry of data which suggested that the U.S Economy was making a rapid recovery from the pandemic following the mass vaccination of its population. ISM Services PMI came in a lot higher than expected as well as promising employment data which pushed the US Dollar to strengthen by over 1% against the Pound and the Euro. Many analysts were suggesting that this could be the basis for an interest rate rise from the Federal Reserve. Non-farm payrolls were crucial, if they followed the trend, an interest rate rise would have been likely, however this data was worse than expected, which eroded a lot of the gains we saw on Thursday.
The United States have now vaccinated over 300 million of their population with 42% fully vaccinated against Covid-19. We have seen the return of full capacity sports events which is a great indication that the economy can begin to fully open. Over the next week we will continue to monitor Joe Biden’s influence at the G7 summit to look for any significant variables such as a global wealth tax. This week we also have data sets from the U.S regarding inflation and consumer spending which will give a further indication as to whether the Federal Reserve will undertake an early “tapering” of the U.S Economy