Currency Note

Sterling boosted by infection fall

By Chris Nye July 27th, 2021

Sterling benefited strongly yesterday from six consecutive days of Covid-19 infection falls. With no clear idea of why cases are falling, that will remain fragile and easily reversed, but the pound’s rise came despite another Bank of England rate-setter (Gertjan Vlieghe) coming out clearly against interest rate rises in a speech to the LSE.

It’s hectic week for US dollar data this week, including an interest rate decision from the Fed, while Europe slows down ahead of August’s traditional break.

Elsewhere in the business news, Tesla’s boost in quarterly profits to over $1billion helped to drive stock markets upwards yesterday (although that’s been reversed this morning for the FTSE).

One business not yet making a profit is Ryanair, which is cutting prices to attract flyers back on board but only expects to be flying around 67% of its normal summer traffic.

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GBP: Pound extends gains across the board

The pound rose throughout the day yesterday, extending its gains at the latter end of last week and currently more than 1.25% stronger than last week against the euro and US dollar.

Of all the top 20 global currencies, only the Norwegian krone has performed better than the pound in the past week, as Covid-19 cases continue to defy expectations.

It’s a relatively quiet week for data, although we’ll hear more on house prices tomorrow from the Nationwide. Today at 11am it’s the CBI distributive trades survey of retail sales, which last month hit +25, its highest for three years and well above expectations.

Another member of the Bank of England’s Monetary Policy Committee has shown his hand on interest rates. Gertjan Vlieghe reiterated the stance that current inflation is transitory and that interest rate rises must wait: “Yes, the economy has been growing rapidly, but on the most recent data it remains an average recession away from full employment,” he said, adding: “I think it will remain appropriate to keep the current monetary stimulus in place for several quarters at least, and probably longer.”

GBP/USD past year

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EUR: Mixed day as summer breaks approach

The euro had a mixed day yesterday, strengthening against USD – although all those gains have been wiped off this morning as it continues its two-month slide against the dollar.

The recent pattern has been similar against sterling, although here the slide has been longer term, since last September.

Yesterday’s Ifo Business Climate reading for Germany was slightly down on expectations. It’s a quiet period for data, although we’ll have French unemployment today (what will be the result of Macron’s form line of vaccine refuseniks?) and the biggest reading of the week, business confidence, tomorrow and Thursday.

USD: Busy week for US dollar starts well

The US dollar leapt ahead yesterday against most currencies but remains down on the week against all but the Japanese yen, and even against the euro.

It’s a busy week for the US dollar, with plenty of data and an interest rate decision.

US new home sales continued to decline in June, down by 6.6%, and today we’ll hear about house prices from S&P Case-Shiller, with an expectation that prices are continuing upwards at a rate of around 15%, perhaps even higher.

The big data release today is Durable Goods Orders for June, but tomorrow is the latest on Interest rates from The Fed and then GDP for Q2 on Thursday. On Friday we’ll hear how people have been spending their stimulus checks, with $6billion distributed by the IRS in June, which may be reflected in personal spending for the month. That data comes out on Friday afternoon, 1.30 UK time.

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