03/08 – Currencies walking on eggshells

Jeremy Thomson-Cook
Jeremy Thomson-Cook 03 August 2021

GBP: Bank of England meeting on Thursday

EUR: A quiet time

USD: Three things to watch

Sterling

As expected, sterling is quiet ahead of Thursday’s Bank of England meeting and this is not likely to change today. Yesterday’s manufacturing PMI matched the preliminary expectations announced a few weeks ago and show that while demand is increasing, supply chain issues from Brexit, Covid and a shortage of haulage drivers are hurting the sector.

Price pressures are also evident, and it will be crucial as to how transitory these moves are seen to be by the Bank of England on Thursday as that will have a huge impact on the prospects for interest rate increases.

Euro

It’s not easy to find something to talk about for the euro at the moment; August is typically a quiet month, and this is no different. As we noted yesterday the longer the European economic data remains ‘so-so’, the longer the European Central Bank will be happy to sit on the currency and not allow it too much upside.

With retail sales due from the Eurozone tomorrow and nothing today, it’s difficult to see too much movement for the single currency.

USD

Dollar watchers have three things to watch this month; Friday’s payrolls report, the ongoing debt ceiling negotiations in Washington and the Jackson Hole economic symposium at the end of the month. The first two will feed into the third and could lead to dollar weakness in a few weeks’ time as markets may feel the need to price out expectations of a rate hike in 2022.

Friday’s jobs report remains all important in the short term and a disappointment there could be enough to start a strong slide for the greenback.

Elsewhere

The Reserve Bank of Australia took some in markets by surprise overnight by sticking to their tapering plans for stimulus. Despite only being announced a month ago, rising covid-19 cases and lockdowns in that part of the world had led some to believe that it would be postponed but the RBA seem happy to progress on current plans.

The announcement brought the AUD higher overnight but given the backdrop of cases we do not expect the AUD to make a meaningful recovery from here.

Market rates

Today’s Interbank Rates at 08:53 against sterling. Movement vs yesterday.

Euro €1.171 
US dollar $1.391 
Australian dollar $1.880 
South African rand R20.00 
Japanese yen ¥152.0 

Have a great day.