Daily Currency Update

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Sterling takes its cues from Bank of England last week

GBP - British Pound

Sterling remained on the front foot, as we headed into a quiet period in the market. August is known to be a quiet month, where market volatility can be low, and the markets can provide less activity than normal with many on holiday.

However, the Bank of England's comments last week provided the rocket that Sterling needed, with Sterling driven by comments that the UK's central bank could look to increase interest rates and ease its policy around Quantitative Easing sooner than expected. It stated that ‘some modest tightening of monetary policy is likely to be necessary’ to keep inflation under control.

The pound remains on the front foot, particularly against the Euro, testing the psychological 1.18 level.

Thursday sees the release of UK GDP, which will be watched closely for signs of economic growth as we come out of the pandemic. The economy has been propped up by Rishi Sunak artificially throughout the 18 month pandemic, and investors are keeping a close watch on how removal of the Stamp Duty holiday and the furlough scheme, could have impacted the economy. A weak GDP figure could halt sterling in its tracks, losing the momentum it has gained in recent weeks.

Key Movers

Global positivity around Coronavirus continues to set the tone in global markets. As we see investors returning to riskier assets, there is a general tone of optimism. 4.2 billion vaccinations have now been administered worldwide. And we have seen travel open up between the US and Canada for the first time since March 2020. This has supported the global stock markets, and riskier currencies like Sterling have benefitted.

Last Friday saw the release of the US non-farm payrolls, watched closely for its ability to gauge the strength of the US economy. It struck a very positive tone for the US dollar, reporting a figure of 943,000 versus expectations of 870,000. Along with the lowest US jobless claims figure for three weeks, the market took this reading as the US economy coming out of the pandemic in very good shape. With it, the US dollar was a benefactor, strengthening by over 0.9% versus the euro over the week, while US Stocks and US treasury yields were both on the front foot.

Federal Reserve vice chair, Richard Clarida, also stated on Wednesday last week that ‘progress’ had been made towards the Fed’s goals of full employment and 2% average inflation and indicated that the economy was moving towards the thresholds that would warrant an adjustment to the central bank’s bond-buying programme, with an interest rate increase expected for 2023. This is a push forward from the previous 2024 expectation, and thus the US dollar continued to benefit versus its G10 peers. In fact, it was the standout performer versus every single G10 currency last week.

Expected Ranges

GBP/USD: 1.3810 - 1.3895 ▼

GBP/EUR: 1.1760 - 1.1810 ▲

EUR/USD: 1.1720 - 1.1785 ▼

GBP/AUD: 1.8650 - 1.8935 ▼