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Sterling slips as England relaxes COVID-19 restrictions

GBP - British Pound

Today is what some have dubbed "freedom day" in England as most of the final COVID-19 restrictions on domestic life are removed, allowing nightclubs to reopen, capacity caps to be removed from all theatres, cinemas and sporting stadia, and pubs and restaurants no longer limited on the amount of people they can seat.

The unlocking of the English economy is a step into the unknown and will be closely monitored by other countries around the world. With cases of COVID-19 recently getting above 50k per day, Boris Johnson's government is putting faith in the vaccines to prevent a dramatic rise in hospitalisations. At present it appears the link between positive cases and hospitalisations/deaths has been dramatically weakened by the success of the vaccine roll out, however we could be on course for a sizable third wave which could put extra pressure on the NHS.

GBP/USD is lower this morning as the dollar’s safety is sought by investors as stock markets around the world start the week showing losses. It appears global COVID-19 concerns, rising US inflation and the floods in Western Germany and neighbouring countries are making investors sell equities and seek safe haven assets. GBP/USD is currently close to a three month low around 1.3720. GBP/EUR is currently around 1.1640.

Key Movers

The spectre of rising US interest rates is continuing to spook investors and leading to losses in riskier commodity tracking currencies such as the Australian dollar, New Zealand Dollar and South African rand to the benefit of the traditional safe havens such as the US dollar, Japanese yen and Swiss franc.

Last week saw monthly US inflation overshoot expectations for the fourth month in a row adding pressure on policy makers at the US Federal Reserve to raise interest rates sooner than currently expected to counter rising prices. At present the Fed is continuing to state the above target inflation is transitory and not entrenched, however with the annualised rate of inflation now at 5.4% its resolve could be tested should more indicators signal this is more than a temporary spike.

The other main theme in markets at present is a resurgence in COVID-19 cases on the back of the more transmissible Delta variant starting to get a foothold around the world. The aforementioned unlocking of the English economy will be closely monitored, especially by countries with high vaccination levels comparable to the UK.

This week’s main event is the European Central Bank's interest rate decision on Thursday lunchtime. No change in policy is expected however the accompanying press conference from ECB chief Christine Lagarde will be the main area of focus with commentary on COVID-19 developments the main area of attention. EUR/USD is currently around 1.1780.

Expected Ranges

GBP/USD: 1.3680 - 1.38 ▼

GBP/EUR: 1.16 - 1.1730 ▼

GBP/AUD: 1.8520 - 1.87 ▲

GBP/NZD: 1.9605 - 1.98 ▲

GBP/CAD: 1.7360 - 1.75 ▲