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ACM Update Monday 24th May 2021

GBP continues its recent strength, but concerns regarding the COVID Indian variant preventing lockdown restrictions easing as planned are looming, despite 60m vaccinations now being administered in the UK. The “pent-up demand” prior to the April unlocking, gave a massive boost to retail sales in the UK, whilst those in the US also demonstrated growth.

The pound has been enjoying an excellent last few weeks versus the Dollar and broadly speaking against the Euro too, with lockdown easing continuing to be the main driver. Two weeks ago, we saw a boost as the widely expected latest stage of easing was confirmed as going ahead, however the next phase on 21st June in England seems a little more uncertain. Markets seemed in a “wait and see” mode as a result, with GBP-EUR and GBP-USD moving in less than a 1% range all week.

Prime Minister Boris Johnson has already alluded to the next phase of easing being “closely monitored” as the Indian variant of the Coronavirus causes concern. There is still uncertainty too as to the effectiveness of the current vaccinations against this new variant, causing not only concern for health but cooling the recent GBP surge. Movements for GBP versus the Euro last week can be seen below:

A relatively calm week for GBP-Euro.

Monday was a quiet one in terms of significant pieces of data, but GBP unemployment figures on Tuesday morning provided more reasons for positivity. The number of those claiming benefits saw a sizeable drop and the overall unemployment rate beat expectations, now running at 4.8%. As mentioned last month, this is likely being heavily assisted by the furlough scheme but for now at least it is an improvement. Eurozone GDP for the first quarter of -0.6% gave more impetus to the GBP-EUR move.

Andrew Bailey also spoke about the inflation risks to the UK economy in a speech on Tuesday. Currently the Bank of England Governor sees no concern over the increase in consumer prices (CPI), despite noting the increase in prices paid by manufacturers (RPI) over recent months. For now, it seems the Bank wont need to amend interest rates to combat inflation, but as with all major central banks the figures will be watched closely over the coming months.

Wednesday saw CPI figures released either side of the English Channel, with the UK figure of 1.5% and Eurozone figure of 1.6% showing increases but not in an unexpected way.

In the evening (UK time) the Federal Reserve took centre stage with the minutes from their latest meeting in April. A number of Fed members were hinting towards the tapering of bond-buying and inflation was noted as having moved higher too, but not in such a way as to cause concern. It is important to note though that the latest meeting took place a week before the massively under expectation April jobs figure, so the picture has changed dramatically since. Interest rate rises in the US still seem a way off as a result, despite the recent growth and inflation moves. Recent swings for GBP-USD can be seen below:

Still a gradual upward tend for GBP-USD, despite some troughs.

Much like the US, Australian jobs data released on Thursday saw a miss, with the number of those employed falling by nearly double the amount of the forecast increase. This pushed GBP to its best levels versus the Aussie in over six months, presenting a good buying opportunity.

The week closed out with a range of different figures, the headliner being the retail sales figures for April from the UK. There has been much talk of late of all the “pent up demand” in the UK economy ahead of restrictions easing, which did indeed prove to be the case with an increase of 9.2% in the month. PMI manufacturing and services data followed for the UK, Eurozone and US, all showing good signs of growth, despite the UK services sector figure coming in slightly under expectation.

So into the last week of May we go and there are a few Bank Holidays to mention on Monday in Switzerland, France, Germany and Canada. Andrew Bailey also makes an appearance in the afternoon in front of the Treasury Select Committee, so any clues from his words on monetary policy will be eagerly anticipated.

The early hours of Wednesday will see more clues as to upcoming monetary policy in New Zealand. With the country being one of those to better handle the pandemic, the outlook may well be more positive than others, but income being generated from overseas tourism is still substantially below where it would be in a normal year, impacting the jobs market and subsequently the wider economy.

US preliminary GDP and unemployment claims are the main highlight of the second half of the week, landing on Thursday lunchtime (UK time). For Q1 of the year 6.4% for the GDP is forecast and 427,000 unemployment claims in the last week, but it will be very interesting to see how the jobs market is doing, ahead of the latest non-farm data a week later.

One point of note, next Monday 31st of May is a bank holiday in the UK so the Aston offices will be closed for the day.

So, the overall picture for GBP is still very positive, with favourable data releases last week assisting recent moves, certainly against the Dollar. For those needing to sell Dollars and Euros over the coming months, it is a prudent time to reach out and discuss in more detail securing your exposures, rather than leave rates open to chance. We are also seeing excellent opportunities on commodity currencies such as the Australian and New Zealand Dollars.

Do reach out to the team for more information in the usual way.

Have a great week!

written by

David Comber

David Comber is a Senior FX Trader at Aston Currency Management