Home Daily Commentaries The pound makes a small recovery

The pound makes a small recovery

Daily Currency Update

GBP - British Pound

After three days of negative moves for Sterling, yesterday saw the pound recoup some of those losses. The announcement from the government at the start of the week that taxes in the UK were to be hiked hindered the pound, as investors feel this will do little to instil consumer confidence and their willingness to get out there and spend their money.

However, yesterday saw a turn for the better for the pound, making a strong comeback from the two week lows it had hit versus the US dollar, and the lowest since late July versus the euro. Some of these gains were due to the comments from Bank of England Governor, Bailey, who stated that conditions had now been met for the central bank to consider increasing interest rates again.

This morning saw the release of some data from the UK, which painted a picture of a sharp decline in economic activity in July. The monthly GDP figure missed expectation of posting 0.5%, but instead posted 0.1% growth for the month of July. Furthermore the UK's manufacturing production was more or less flat through July. There was some light at the end of the tunnel with industrial production, which posted a better than expected rise to 1.2% month on month. Early impacts on the pound appear to be small, as markets may have anticipated these figures, and instead remain focused on forward looking data that provides insight into how the UK could recover from the pandemic and grow.

Key Movers

The euro made some small gains yesterday after the European Central Bank's meeting. The ECB stated that they will trim their emergency bond purchases during the next quarter, with this being the first step towards loosening the emergency aid that has contributed to the eurozone economy over the pandemic.

Though they did not provide any figures for this unwinding, they stated that they will now conduct the purchases at ‘a moderately lower pace than in the previous two quarters’. What this moderately lower pace will actually look like remains unclear, but analysts believe that debt purchases by the bank will fall to between 60-70 billion in the next three months vs. the 80 billion that was bought over the previous two quarters respectively. This policy normalisation supported the euro, with investors confident that the Eurozone could return to a state of pre-pandemic levels sooner than anticipated.

During the press conference, ECB President Lagarde did raise expectations of December being the meeting where this could begin. This means that any key eurozone data or high inflation prints between now and December could influence the euro, and there could be an increase in volatility for the euro leading into that meeting.

Expected Ranges

  • GBP/USD: 1.3810 - 1.3910 ▲
  • GBP/EUR: 1.1660 - 1.1745 ▲
  • GBP/AUD: 1.8630 - 1.8815 ▲
  • EUR/USD: 1.1805 - 1.1900 ▲