The currency markets appeared to shrug off the widely-anticipated news that the UK’s remaining Covid-19 restrictions will not be lifted on 21 June as hoped, but will be extended to 19 July at least. Although sterling ended the day essentially unmoved, there may be longer term affects over the weeks ahead.
This morning there was broadly positive news on work in the UK, with unemployment claims falling by over 92,000 and average earnings rising by 5.6%, both better than expected.
Despite this, sterling has struggled against the euro this morning, while strengthening against the US and Australian dollars.
The continuing pandemic restrictions affect pubs, nightclubs and theatres in particular, with nightclubs remaining closed, theatres at 50% capacity and pubs with table service only. The red, green and amber system for international travel is unaffected.
However, several leading economists make it clear today that overall this will have a marginal effect on GDP and the economy is still set to rebound sharply. The FTSE hit its highest rate since February 2020 and oil prices their highest since April 2019.
Elsewhere, the UK is signing a trade deal with Australia today, the first to be more than an extension of previous EU deals.
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GBP: Pound remains stable after “freedom day” delay
The pound has weakened this morning against the euro, while strengthening marginally against most other currencies. This drop might have been expected on news of the delay in pandemic-restriction releases yesterday.
Today’s employment data, showing unemployment remaining very close to pre-pandemic levels at around 4.7%, briefly moved the pound upwards this morning against the euro, although it has since moved down again, and further.
Tomorrow morning we will see inflation data, with the only other data release of note being retail sales on Friday.
GBP/USD over past year
EUR: Euro strengthens
The euro performed well against the US dollar yesterday, although we are still some way off recovering last week’s near-1% loss.
There was a similar pattern against the pound, with the single currency continuing to strengthen in early trading this morning.
There was little to move the market yesterday – although eurozone industrial production was above expectations – but today we have balance of trade for the bloc, as well as inflation from several key economies.
USD: Start to tapering in sight
Despite a small dip yesterday, the US dollar has been strengthening slightly against the euro over the past week or so, while remaining nearly 10% lower than this time last year.
This may not last. There is increasing talk in the US of the need to start tapering support for the US economy, which would be supportive of the dollar.
More immediately, we have a good deal on the docket today, with retail sales coming in at 1.30pm launching an afternoon of data, including industrial production and the housing market.
Tomorrow is the Federal Reserve’s interest rate decision.