04/05 – Sterling starts off big week on the back foot

Jeremy Thomson-Cook
Jeremy Thomson-Cook 04 May 2021

GBP: Showdown for sterling bulls on Thursday

EUR: Eager to push on

USD: Data showing a lot of strength

Sterling

It’s an incredibly busy week for the pound with the Bank of England meeting and Scottish elections both due on Thursday. In the short term and for the majority of the people reading this, the Bank of England meeting will be more important for the pound and upgraded forecasts as to the strength of the UK economy and language that hints at a prospect of tapering could be the catalyst for a run higher in the pound.

We may sound like a broken record but market participants will be looking for the BOE meeting to see sterling break the $1.40 level.

As for the elections, a knee-jerk sterling decline on a strong showing by independence focused parties is possible but we see the longer term chances of a referendum to be slim and that remains the most essential thing. The market knows that some in Scotland want independence from the rest of the UK, until they have the tools to do so we believe Scottish risk will simply allow people better levels to buy sterling.

Euro

Despite Friday’s GDP announcement showing the Eurozone has fallen into another technical recession, the euro has remained resilient and could drive higher this week. The June 10th meeting of the ECB has been highlighted as a crucial one for setting out what the central bank believes markets should pay attention to. Before then speeches from ECB President Lagarde and Chief Economist Lane may be enough to keep the currency bid.

US dollar

This week is likely the first week of many that the dovishness and caution of the Federal Reserve and the likely strong data from the US economy throws up ever sharper and sharper contrasts. ISM releases detailing sentiment in the US services industry as well as Friday’s jobs report that could see as many as a million jobs added; the highest number since vaccines were rolled out.

Strong US data is good for the dollar at the moment given the positioning of the central bank; they have backed themselves into a corner. Should these numbers remain weak however, that is when the market will start to focus more on growth differentials between the US and Europe for example.

Today’s factory orders and durable goods orders numbers should echo the strong manufacturing sentiment numbers that were released yesterday and are the main reason for the dollar’s stronger position this morning.

Elsewhere

The AUD has come lower overnight despite an upbeat forecast and analysis by the Reserve Bank of Australia. Governor Lowe told markets that “Despite the strong recovery in economic activity, the recent CPI data confirmed that inflation pressures remain subdued. The board is prepared to undertake further bond purchases to assist with progress toward the goals of full employment and inflation. The board places a high priority on a return to full employment.”

AUD is down 0.3% against the USD this morning and is flat against the pound.

Market rates

Today’s interbank rates at 08:52 against sterling. Movement vs yesterday.

Euro €1.153 ↑
US dollar $1.386 ↑
Australian dollar $1.795 ↑
South African rand R20.06 ↑
Japanese yen ¥151.7 ↑

Have a great day.