Market Update 21st June-27th June
Where you will be able to keep up to date with all the latest changes in the currency market
The outlook for sterling for the coming week is expected to be a cloudy one with a decline of 1.5% against the USD and a decline of 0.15% against the EUR alone. The highlight of the week is the Bank of England’s policy meeting which will be held on Thursday. BOE are expected to give their latest assessment on the UK economy but to keep interest rates unchanged. This could yield some gains towards the latter stages of the week however a lot of analysts predict that much of the good news on the economic outlook might already be priced into the pound and any further news on data disappointments could see sterling decline further.
As well as this tensions between the EU over the Northern Ireland protocol have raised the threat of a trade war. The EU stated on Thursday that they received a request from the UK government to delay some parts of the Northern Ireland protocol until September to allow more time to find a solution to facilitate the flow of meat products from GB to northern Ireland. This dispute looks like one that could drag on for sometime and more headlines on this matter could spark some more pressure on sterling.
The GBP-EUR rate dropped 0.15% as traders started to question the UK’S reopening amidst rising virus cases. Uk unemployment numbers showed signs of recovery as the number of employees on payroll increased for the sixth consecutive month. This is one of the reasons why sterling is staying relatively steady against the EUR as well as both the UK and Eurozone releasing inflation figures.
The British economy had a head start on the reopening of lockdown and this showed in the figures as the Eurozones inflations figures were 1% higher than the British. The slower reopening path was the main reasons for this of the Eurozone. As well as this one of the main reasons there are downside risks to the GBP-EUR forecasts because there is a lot of uncertainty around the re-opening of the remaining closed industries with lockdown being pushed back a further month and any further increase in covid cases could cause more disruption on business industries.
The British pound continued its slide against the USD after Boris Johnson announced on Monday that there will be no easing of covid restrictions on June 21st as originally planned. However the main reason for the decline in rate is more so due to Dollar strength as the US Federal Reserve surprised investors by announcing that it’s ready to raise interest rates and pull the plug on emergency bond-buying sooner than expected.
As well as this initial jobless claims increased (first time filings) totalled from 412,000 compared to 375,000 the previous week. U.S inflation figures rose to more than 5%, twice the level of the Fed’s target of 2%, this further increased suggestions that the bank is somehow providing too much stimulus to the U.S economy.