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Will Sterling's Gains Continue?

There are two main catalysts for the pound’s rise in value. The Brexit deal and the rapid rate of vaccination in the UK. Although Boris Johnson’s deal was no great shakes it has taken a no deal scenario off the table which was a huge concern for investors. The lack of clarity surrounding a deal caused the pound to remain weak for the four years of negotiation. Now the no deal scenario has been avoided the anchor has been pulled and sterling is free to make more significant gains.

The rapid rate of vaccination bodes well for the UK’s economic recovery from the damage caused by the pandemic. It is now estimated that there have been over 40 million first dose vaccinations.

We have seen GBP/USD recently reach a three year high, the same levels as pre-Brexit, hitting 1.4227 on 1st June and GBP/EUR hitting a yearly high 1.1810 in early April.

However, we have seen gains against the euro stall over the last six weeks. When GBP/EUR hit 1.1810 it could have been due to over pessimism regarding the Eurozone’s vaccine rollout, with GBP/EUR quickly retracting. With Europe now having pulled their socks up to some extent these gains have been lost. The peak of the market in the last month is 1.1677, with 1.17 now seeming to stand up as somewhat of a resistance point.

It is probable that concerns over the Indian variant of Covid-19 is slowing the Pound’s momentum. With case’s rising quite significantly although some way off levels that would justify any further lock down restrictions.

It is now rumoured that the easing of lockdown measures due 21st June could be delayed by a fortnight after a pessimistic briefing from Chief Medical Officer for England, Chris Whitty and Chief Scientific Advisor, Patrick Vallance. They believe the outlook is “fairly grim”. The delay would enable all over 50s the chance to be fully vaccinated and time for the vaccines to take effect. However, how significant an impact will this have on the UK economy?

Credit and debit card spend has now reached 96% of the average pre-pandemic level, growth forecasts are up and there has been a host of very optimistic economic data.

On Friday we will see the release of manufacturing production and industrial production. There is expected to be a slight decline in both sets of data, although if data lands away from expectations expect market movement.

GDP is also released later in the day and there is expected to be a rise from 2.1% to 2.4% which does have the potential to help the pound.

The G7 Summit

The G7 “Group of Seven” Summit is due to commence in Cornwall on Friday. There are several topics on the agenda. The most prominent topic no doubt will be Covid recovery and also how to have a global health system that can protect us from potential future pandemics. But the agenda will also include climate change and trade. Although the G7 has now power to put in place new laws, each individual nation involved can choose to try and put new legislation in place.

If there is any serious news surrounding trade we could see volatility on the currency markets so it would be worth watching events as they unfold.

ECB Interest Rate Decision

The European Central Bank (ECB) interest rate decision is due to tomorrow and although the decision itself may not provide any gasps of astonishment the Monetary Policy Statement and press conference following the decision could cause volatility.

It would be surprising to see interest rate levels change from 0% and also deposit levels change from – 0.5% considering the current economic climate, in fact it was hard to justify any significant positive changes to these levels even pre pandemic, so these levels could remain in place for the foreseeable.

The Monetary Policy Statement and press conference however could provide insight into how the ECB plan to combat the current economic problems they face and in the past has been known to move the market. It could prove wise to keep an eye on this if you have a currency requirement involving the euro.

$3 Trillion To Be Spent On Covid Recovery

The US dollar could be in for a rough time against the majority of major currencies. Sterling has made gains against most currencies, but particularly the US dollar, hitting a three year high this month of 1.4227. Back to pre-Brexit levels.

The Covid-19 Pandemic hit the US hard, although the vaccination effort has been impressive the pandemic has taken a heavy toll on one of the world’s largest economies. To combat this President Biden has pledged to pump an obscene amount of money, $3 trillion into the economy. With this kind of money going back in it will in turn devalue the US dollar and could have long lasting consequences. It may be the case that the US dollar is no longer the safe haven currency of choice.

Tomorrow we will see the release of US Consumer Price Index (CPI) data. CPI is a measure of price movements in goods and services, a key barometer for inflation and in turn the health of an economy. There is expected to be a fall from 0.9% to 0.4% which could affect dollar value.

The G7 summit which commences on Friday in Cornwall could have influence on the markets as it is rumoured that tax implications for large tech firms is on the agenda.

Also on Friday we will witness the Michigan Consumer Sentiment Index. This will give an insight in to Consumer spending. The survey is popular amongst analysts and investors alike as the data compiled is very recent, as recent as a day or two before the official release making it a timely measure of consumer sentiment. This has been known to cause a change in USD value.

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