June’s Big Unlock Looks to Push Pound Higher

GBP

The Pound was the third best performing G10 currency last week losing only a small amount to both the Canadian Dollar and Swiss Franc. Against the Euro, Sterling finished up by 0.1% but spent the week trading in an 80-pip range and bouncing between 1.1570 and 1.1650. Versus the Dollar there was an increase of 0.4%, managing to shake off the recent USD rebound well and now continues grinding higher. Monday saw the beginning of the penultimate reopening stage, with pubs and restaurants welcoming customers back inside which is continuing to boost the UK economy and give GBP a tail wind. This has been further backed up positive employment and CPI figures released last week.

This week is likely to be a quiet one for the Pound, in terms of both data and politics but this does not mean it will not push higher against both the Dollar and Euro. There are two speeches from the Bank of England’s Tenreyro and Vlieghe, but these are unlikely to impact the market. The Pound will be reactive to both the Dollar and Euro, but if the current climate stays the same then the Pound should push higher.

USD

The talk of tapering was revealed in the FOMC minutes last Wednesday, as some Fed members are starting to look at a change in policy. Though this failed to help the Dollar, which continued its well forecasted weakening with the Dollar index now only 1% away from this years lows. Though the Greenback did manage to stage a slight comeback late on Friday, as exchange rates rose alongside U.S. government bond yields following a volley of economic surprises and some late in the day declines for European currencies. U.S. manufacturing sector advanced to a new record high of 61.5 in May from 60.5 the prior month, lending weight to the view that the world’s largest economy likely shifted into a higher gear this quarter.

The main driver for the current Dollar weakness comes from Fed’s view that they are willing to keep stimulus in place until growth is well over the 2% and will deal with inflation after. This week is unlikely to challenge these views, due to a relatively light economic calendar. The only real data of note comes on Thursday with Durable Goods Orders for April expected slightly down at 0.8% and Q1 GDP at 6.5%. There are also several Fed speakers throughout the week, but these are all on the dovish end of the spectrum, so unlikely to rock the boat. The Renminbi may also have a negative affect on the dollar this week if the Chinese government look to strengthen the currency to combat rising commodity prices.

EUR

The euro continued its bull run against the Dollar increasing by 0.4% over the course of last week and getting close to 1.2250 on two occasions, a level not seen since early January this year. It’s not just currency which is outperforming the states at the moment, with the Eurostoxx outperforming the S&P 500. Data wise saw Eurozone GDP hit the consensus of -1.8% year on year and Markit PMI Composite for May outperform slightly at 56.9. Coronavirus cases continue to fall across the continent which is boosting confidence in a faster economic recovery especially compared to the US.

This week starts with a special European Council meeting, which will be mainly focused on climate change and the EU’s plan to implement a net reduction of greenhouse gases of at least 55% by 2030. This meeting is unlikely to cause short term volatility in the Euro but may offer insight into longer term plans for the EU. On the data front, it’s also a quiet week for the Euro with the only data of note coming on Tuesday with GDP for Germany and on Friday with Consumer Confidence and Business climate for the EU.