The Pound had a difficult week, losing ground against every G10 currency apart from the New Zealand Dollar. Against the Euro, Sterling finished flat but lost a quarter of one percent to the US Dollar. The Pound has suffered due to uncertainty around the full reopening of the economy on the 21st of June. Coronavirus cases have continued to increase despite the strong vaccination program, with half of UK adults now fully vaccinated. The government stated over the weekend that they are open to delaying the reopening and Sterling will remain sensitive to this news, in the week to come. Data wise, UK Markit Manufacturing PMI just missed expectations of 66.1 but still showing growth in the sector.
As stated above, the reopening date and covid numbers will be key for the Pound this week, as markets await to see if the strength gained from the beginning of the year can be backed up. The economic calendar is a lot busier this week with the highlight coming on Friday in the form UK GDP for April. This is expected to increase significantly from the previous month due to reopening of shops and outdoor hospitality. The other data of note is also released on Friday, with April’s Industrial and Manufacturing production.
The Dollar gained strength towards the back end of the week, as markets expected a rebound in the jobs report after last month’s historic disappointment. Though once again the numbers fell short, coming in at 559K versus the 650K expected. This led to GBP/USD increasing by half a percent on Friday afternoon and the Dollar gave back the gains it made on Thursday following the release of consensus-beating Initial Jobless Claims and ADP non-farm employment figures, that hinted the headline Friday non-farm report would come in strong. In the White House, Biden is still backing his corporate tax plan which has yet to have a meaningful impact on the Dollar so far, but this may change in the coming weeks.
The poor jobs data on Friday will allow the Fed to stick to their current policy, saying that substantial progress towards its goals have not been met and will delay any talks of tapering. This will be confirmed at the next FOMC meeting taking place on the 16th of June. Data wise, the main talking point will be super Thursday, with the ECB interest rate decision and US CPI. The latter is expected to decrease month on month but increase from 3% to 3.4% year on year. Overall, the Dollar is expected to continue to weaken versus all major currencies.
The Euro was in a similar position to the Pound last week, only managing to find strength against the New Zealand Dollar. Eurozone CPI moved to the key 2% level on Tuesday, the first time since October 2018. Though one would normally expect the ECB to shift away from the ultra-accommodative monetary stance, they are unlikely to do so with QE tapering unlikely to be on the table in the June meeting. Retail Sales for the eurozone where up massively from the previous reading of 13.1% at 23.9% as the European economies reopen from coronavirus restrictions.
As mentioned in the US Dollar section, super Thursday will be the key event for the Euro this week, with the ECB interest rate decision and following press conference. Christine Lagarde and her team are expected to try and skirt the topic of tapering, and this should mean that there is little downside for the Euro. This is because it is hard for the ECB to adopt a tone any more dovish than they already have. Also, on the economic calendar is German ZEW investor expectations as well as German industrial production for April. The Euro is expected to stay well supported against the Dollar this summer due to the higher demand in European equities.
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