By Tom Arnold
The last few weeks on the currency markets have seen something of a limbo for all of the majors, with rates operating within fairly small ranges, while all of the major zones work to get their vaccination programs completed and ease Covid related restrictions. With the UK ahead of the curve, the Pound had been leading the way, but with the US and EU catching up and with the extension of UK restrictions into July, the Pound has seemed to stall somewhat in its gains against both the USD and EUR, leaving us in the limbo we have seen for some weeks.
However, last week brought something new, with a big change in underlying viewpoint from the US Federal Reserve, which has served to bolster the Dollar significantly. The Fed, seemingly from nowhere, changed their up until now very dovish tone, to a significantly more hawkish tone, with regard to future interest rate rises. Expectations had been for no interest rate rises in the US until 2024, but the new suggestion was that there could be two interest rate rises in 2023. Our regular readers will know that when a country’s interest rate is raised the currency gains strength as investment in said currency increases due to higher yields. The mere suggestion that interest rate rises were on the horizon was enough to give the Dollar a 3 cent boost against both the Pound and the Euro, pushing rates down to lows not seen since April. As part of last week’s announcement the Fed also changed its growth expectations to 7% in 2021, and revised unemployment expectations down to 4.5%. All round a very good week for the Dollar, and a real breakout of recent ranges across the majors.
The week ahead has something of a mid-month feel to it, with much of the key data for this month around the globe already released. However, there are some real highlights later on in the week. Following last week’s gains, those with an interest in the Dollar’s fortunes, should be watching for Fed Chair Powell’s testimony on Tuesday and US GDP on Thursday. Any softening of last week’s hawkish stance or failure on the GDP front, could see losses for the Dollar, and likewise affirmation of last week’s positivity, could see further gains for the Greenback.
The UK side of things has little in the way of critical data, but a close eye should be kept on the Bank of England announcement on Thursday – could the Pound get a similar boost to that which the Fed gave the US Dollar last week, or could the UK economic picture be not quite as rosy as our US friends?
The Europeans likewise have little key data due, but a couple of speeches from ECB President Lagarde, and the end of the week EU Council meeting, could throw up more information on the EU’s own economic outlook.
As ever make sure to stay in close contact with you A Place in the Sun Currency account manager, to be kept informed of what is happening and how it is likely to impact you upcoming currency requirement.
Currency Data Due Out This Week
Monday
Australian Retail Sales
ECB President Lagarde Speech
Tuesday
UK Public Sector Net Borrowing
EU Consumer Confidence
US Fed Chair Powell Testimony
Wednesday
EU Manufacturing + Services PMI
UK Manufacturing + Services PMI
Canadian Retail Sales
US Manufacturing + Services PMI
US New Home Sales
ECB President Lagarde Speech
Thursday
EU Council Meeting
BoE MPC Vote + Interest Rate Decision + Policy Summary + Minutes
US GDP
US Durable Goods Orders
US Bank Stress Test Info
UK Consumer Confidence
Friday
EU Council Meeting