Daily Currency Update

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Bank of England meeting this Thursday

GBP - British Pound

After the Central Banks revealing their cards over the last two weeks, with a general theme of keeping monetary policy as loose as possible to allow the global economy to recover, while balancing the need to manage inflation, its now the turn of the Bank of England on Thursday.

Expectations are that the Monetary Policy Committee in the UK will vote unanimously to keep rates on hold, in the same way the Federal Reserve did last week. But against a back drop of an ever-improving economic outlook for the UK, will there be any forward looking rhetoric which might suggest an increase in rates, or tapering of any bond purchasing programme, earlier than anticipated? Sterling is expected to take some real direction from Thursday's meeting, but what direction that will be is yet to be deciphered.

Despite MEPs formalising the post Brexit deal last week, which is a big step to ensuring free trade, France hasn’t eased its Brexit bias. It has called on the European Commission to intervene, after rejecting Britain’s provisional changes to fishing licenses under the Brexit agreement, per a French media report. France's challenge could cause some GBP volatility in the coming days.

The US may also pose some issues for the UK from a post Brexit deal standpoint. The Daily Express states that US President Joe Biden, an advocate of Britain staying in the UK, could push any bumper trade deal with Britain to the "backburner".

Key Movers

The US dollar remains strong against the euro and the pound after robust Gross Domestic Product, Personal Income, and Personal Spending figures from the US last week. Oil also came down to $63 a barrel.

The reason for the US dollar’s resilience could have come from comments late last week from Robert Kaplan, President of the Dallas branch of the Federal Reserve, who stated that the central bank should consider tapering of its asset purchasing programme soon. This view is different to Jerome Powell's, who reiterated that he is willing to allow the economy to heat up, and for inflation to drive forward, before considering any measures around tightening monetary policy. Powell reiterated in comments yesterday that the US economy is indeed heading in the right direction, but that the jobs market remains weak, and employment is lagging.

April's Manufacturing PMI data released for the EU and the US all showed modest downward revisions. The US official ISM Manufacturing PMI resulted in 60, below the expected 65 but still indicating substantial growth (above 50).

The Eurozone slid into a double-dip recession in the first three months of this year as output dropped under the weight of lockdown measures to contain a resurgence of coronavirus infections throughout Europe. GDP fell 0.6% in Q1 which is its second dip after a 0.7% fall in the previous quarter. On the plus side, economists are expecting consumers to unleash a wave of pent-up spending once countries begin to ease lockdown measures.

Expected Ranges

GBP/USD: 1.3830 - 1.3895 ▼

GBP/EUR: 1.1505 - 1.1595 ▲

EUR/USD: 1.1970 - 1.2040 ▼

GBP/AUD: 1.7860 - 1.8075 ▲