Market Update 5th July – 11th July

Where you will be able to keep up to date with all the latest changes in the currency market

GBP

UK house prices rose at the fastest pace since 2004 in 2020, according to the Nationwide index. Sold house prices jumped 13.4% in the 12 months to June. The largest areas showing growth were in Northern Ireland and Wales in Q2, while Scotland saw the slowest rate of annual growth at 7.1%. The Bank of England’s chief economist has notified that inflation is “rising fast” and could reach nearly 4% at some stage this year.

The UK saw consumer prices hit 2.1% and was above the bank’s 2% target for the first time in two years. The MPC said that it expected inflation to go above 3% “for a temporary period” but this does not seem to be the case. Further, The Bank of England’s Governor Andrew Bailey said on Thursday that markets should not over-react to a rise in inflation that will likely prove to be temporary during Britain’s economic recovery.

EUR

German inflation last month came in at 2.3% year-on-year, down from 2.5% in May. The harmonised index, which is used by the ECB decreased to 2.1%, from 2.4% in May. Germany’s exit from Euro 2020 owing to England could also add to disinflationary pressures as merchandise sales pack up in the country. In the UK, the opposite could happen. Germany’s unemployment situation decreased more than expected in June after restrictions were relaxed, according to the Federal Labour Agency.

The number of Germans out of work declined 38,000 in June from the previous month, larger than the expected fall of 20,000. Unemployment had also decreased 19,000 in May. Inflation numbers were also released for the eurozone, but they came in as expected. Consumer prices were higher by 1.9% from the previous year, down from a two-year high of 2% in May. Core inflation, which is less volatile and excludes food and energy, slowed to 0.9%. Tomorrow we will see data released for retails sales in the EU, which will be followed by the ZEW survey measuring the current investor sentiment.

USD

The US Dollar remains supported by investors’ apprehension towards the mounting concern about the spread of the Delta coronavirus variant. Which combined to generate demand for the safe-haven currency. The dollar had made considerable gains in June, predominantly due to a surprisingly hawkish shift in the Federal Reserve’s interest rates outlook.

The ADP National Employment Change Report for June, showed private payrolls rose by 692,000 jobs last month, exceeding the rise of 600,000 jobs forecast by economists. Increased vaccinations have shielded the US economic recovery from the pandemic, raising expectations that the central bank could start reducing its ultra-easy policy, providing further gains for the dollar. This week we will see the release of ISM Non-Manufacturing PMI revealing the current conditions in the US service sector, which has historically been a large GDP contributor.

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