Market Update 2nd August – 8th August
Where you will be able to keep up to date with all the latest changes in the currency market
Since so-called “Freedom Day” in the United Kingdom, we initially saw a large drop in the value of GBP as the number cases of Covid-19 were very high and seemingly continuing to increase. Many analysts expected this would leave to further economic turmoil down the road and any re-opening would only be temporary. However, since this we have seen that Covid-19 cases have been dropping day-by-day for the last week which indicates that despite the drop in restrictions, cases can still reduce naturally which has thus strengthen GBP. The 2-3% drop we saw against the US Dollar has almost been made-up entirely in the two weeks since this date.
Aside from Covid-19 cases we have seen that the U.K faces inflationary pressures in the coming months with lockdowns ending and wages in many sectors (E.G Retail and Hospitality) beginning to rise and the cost of goods increasing in part due to supply problems caused from Brexit, the pandemic and rise in shipping costs from the Far East in particular. This week we have a Bank of England Interest rate decision which will cause a lot of volatility depending on the sentiment and outlook of the decision-makers of the Bank of England although interest rates are currently expected to stay the same, although some analysts believe that something may have to be done soon if inflationary pressures continue. Excluding this, we also have Markit Manufacturing and Services PMI data to bear in mind when assessing the strength of GBP past this week.
Over the past weeks we have seen the Euro fall against the USD its most traded pair by over 3% from the highs we saw at the beginning of June. This in part is due to the Eurozone’s lack of movement regarding monetary policy, which is understandable due to the seemingly lesser inflationary pressures they face against their American counterparts.
We have seen many EU nations beginning to open their borders to vaccinated tourists and this is expected to boost the Eurozone’s recovery from the Pandemic. This week we have Markit PMI for the Eurozone and also we have Retail Sales figures which will help to indicate the strength of the Eurozone, however we will also keep an eye on news around restrictions for travel and business as these are likely effectors on the rate as well as figures around Covid-19 cases, deaths and variants that may come from lesser restrictions across the continent.
Following the continued strength of the US Dollar since June when the U.S announced a future rise in the interest rate- beginning in 2023- we have seen the US dollar eases amid a recovery in the risk sentiment, in anticipation of more stimulus from the US and China. The risk sentiment has been recovering following the so-far successful re-opening of many western economies without significant rises in cases of Covid-19 – or deaths- since the roll-out of the large vaccination schemes we have seen.
We have seen over a 2% fall against GBP since the 20th July and the rate has fell by almost 1% against the Euro in this timeframe, despite the Euros matching status as a safe asset in times of large volatility and uncertainty. Over the next week we have PMI data which will indicate the strength of the U.S economy but is already expected so show large increases with restrictions almost completely eased in the United States. At the end of the week we also have another crucial data set in Non-Farm Payrolls which will similarly indicate the response we are seeing from the U.S Economy to the pandemic.