Currency Note

Dollar plunges to three-month low against EUR

By Christopher Nye May 25th, 2021

Sterling sank by half a per cent against the euro and US dollar early yesterday morning, very much against the trend of recent weeks, although it recovered some of those losses later in the day and hits Tuesday slightly down against the euro only.

The catalyst for the loss appears to be jitters about the “final” end to most domestic lockdown procedures by 21 June – with health experts apparently urging a month or two delay to see off the Indian coronavirus variant first.

A “long read” in the Financial Times today suggests that the dominance of the US dollar could be ending over the long term, hastened by President Biden’s $1.9tn stimulus package. In the shorter term the dollar is struggling too, as investors feel confident enough to buy riskier assets. The euro hit a three-month high against the US dollar and was very close to overtaking January’s level to achieve a three-year record.

A quiet day for UK data means that traders will be looking across the Atlantic and Channel for guidance, alongside any new hints on lockdown ends, both in the UK and eurozone.

The Bank of England governor Andrew Bailey offered his opinion on cryptocurrencies, telling the UK parliament yesterday  “I’m going to say this very bluntly again: buy them only if you’re prepared to lose all your money.”

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GBP: Rare loss at start of week for sterling

With little in the way of data releases to appeal to the market – following the bonanza of good news last week – sterling was left to drift at the start of the week.

This continues the uncertain trend we’ve seen against the euro since early April, although the picture is stronger against the US dollar.

Bank of England governor Andrew Bailey played down the risk of inflation before the Treasury Select Committee yesterday, predicting a rise above 2% by the end of 2021 but “inflation returns to around 2% in the medium term”.

The only data release of note today is CBI Distributive trades survey for May. Indeed that is the only data release for the week.

GBP/USD over past year

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EUR: Euro marches ahead with vaccine

The euro had the best day of any major currency except for the Norwegian krone yesterday, as the vaccine rollout began to pick up pace and overtake the UK in numbers vaccinated each day.

Even so, it only just stayed ahead of sterling while accelerating to a three-month high against the US dollar.

This morning we’ve seen German GDP slightly disappoint with a drop of 1.8% for the quarter – below the minus 1.7% expected – and 3.1% lower than last year.

At 9am we have Ifo Business Climate and on Thursday German GfK consumer confidence – a key reading.

USD: Dollar slide continues

The US dollar slipped yesterday, weakened by an increased appetite for risk among global investors, losing slightly against both EUR and GBP yesterday. It is now trading close to its lowest rates since the start of the year and a full 10% below last year against the euro.

The afternoon was dominated by various members of the US Federal Reserve explaining their thinking on monetary policy. The general opinion is that this month’s rise in inflation was a transitory feature and it would continue to buy bonds at a rate of $120bn per month.

This afternoon we will hear about house prices in the year to March. Last month saw an acceleration in prices to around 12% per annum and that is predicted to rise further.

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