Currency Note

Pound soars to new 11-week high

By Christopher Nye June 23rd, 2021

Sterling’s positive start to the week continued yesterday as the pound regained more of last week’s losses against the dollar.

The picture against the euro was less decisive yesterday but has accelerated away this morning, reaching its highest level since early April and close to its highest level since before the pandemic.

The Bank of England will announce its interest rate decision tomorrow, based on how rapidly the economy is recovering from the pandemic and lock downs. Doubts over the speed of the recovery as the Delta variant takes hold are thought unlikely to cause rates or quantitative easing levels to change. However, analysts have been trying to guess which central bank will move first in raising interest rates – with many believing that the UK will raise rates in summer 2022, a year or two ahead of the European Central Bank.

Tomorrow we should also hear whether new countries will be added to the green list for travel, with Croatia, Italy and Spain’s islands most likely to be on the list for quarantine-free travel (at least on your return).

A report from Credit Suisse has found that more than five million people have become millionaires during the pandemic – another 10% – as stock markets have recovered and global house prices soared.

A new £50 note is released by the Bank of England today, with the World War 2 codebreaker Alan Turing on its face.

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GBP: Pound moving strongly against euro

The pound enjoyed a mildly positive day against the euro yesterday while remaining well over 1% up on the US dollar this week – albeit still 1% down on last week.

However this morning it has accelerated strongly, gaining almost 0.4% in early trading against the euro.

Yesterday’s data included the CBI’s industry order book balance, which beat expectations to rise 2 points, its strongest level since May 1988.

This morning we will see the Markit/CIPS purchasing managers’ index (PMI) for services and manufacturing. In normal times anything over 50 is positive, but the markets will be looking for something closer to 63 or 65 as an indication that the UK economy is powering out of the pandemic.

Tomorrow is the interest rate decision, so be prepared for market movements even if, as expected, there is no change in either interest rates of levels of quantitative easing.

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EUR: Euro falls sharply against pound

The euro has fallen sharply against the pound this morning, while remaining weak against the US dollar compared to last Wednesday (although still 5% or so stronger than last summer).

Yesterday we saw Eurozone consumer confidence higher than last month and the highest since early 2018. Today we will hear about Manufacturing and Services PMI for the eurozone and Germany, with France’s already coming in at or close to expectations.

Tomorrow, however, is the big day for data and interest rates in both the UK and Eurozone.

USD: Economists fall out over inflation risk

The dollar has fallen against both sterling and euro over the past 24 hours. Yesterday’s data releases offered no surprises, with home sales still falling.

Yesterday Larry Summers, treasury secretary under Bill Clinton, described President Biden’s stimulus package as “the least responsible macro-economic policy we’ve had in the last 40 years”. However, on Radio 4 this morning Professor Cecilia Rouse, a senior economic advisor to Biden, said that the stimulus package included vital infrastructure and investments in support for American families, and reiterated the view that inflation would be transitory.

She also reiterated that interest rate decisions were independent but that the rapid growth in American wages was healthy.

Today we’ll hear about future business optimism in the Markit services and manufacturing PMI, while tomorrow it’s GDP and jobs.

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