04/08 – Rocket or rough patch for sterling?

Jeremy Thomson-Cook
Jeremy Thomson-Cook 04 August 2021

GBP: Holding out for tomorrow’s Bank of England meeting

EUR: Happy to keep weakening

USD: Big number today, big number Friday?

Sterling

There really is very little to talk about for sterling until tomorrow’s Bank of England meeting. Expectations remain that the recent hawkish communications will continue from the ratesetters of Threadneedle St and therefore we have to be aware that the most severe outcome from this meeting is sterling negativity, not positivity.

Upward progression for sterling can come from a number of areas; the Bank believing that cases of the delta variant is under control, that Brexit risks are under control, that wage and price increases are here to stay and confidence that the furlough scheme will end smoothly without causing a huge lump of labour to remain unwanted all have the power to push the pound higher.

It’s just that we’ll have to wait for tomorrow. In concert with the payrolls numbers from the US on Friday, the next 72hrs could be a rocket or a rough time for the GBPUSD rate; a hawkish BOE and a poor US jobs number and we’ll be looking at prices over 1.40. The opposite and we could be back to the 1.37s.

Euro

The continued belief that the ECB will allow inflation in the Eurozone to run above target before even countenancing an increase in interest rates is putting the pressure on the single currency. The ECB will not be unhappy with this although those holding the euro obviously will be. Unless there is material breakdown in expectations around the US or UK economies and/or the behaviour of the Federal Reserve/Bank of England in the coming weeks, there is little expectation of a strong EUR rally at the moment.

USD

There are two things to keep an eye on today from the US; one a piece of data and a speech by a Fed member. The ADP jobs report is erroneously used by some as a pre-cursor to Friday’s payrolls report. While the predictive power of the first is scant, the broader theme of “big number on Wednesday means number on Friday” holds true for the most part.

Anything above 680,000 should stimulate some dollar buying.

The speech is marginally more important as the member speaking may feel today is the time to announce his thoughts on when tapering of stimulus will begin. Fed Member Clarida speaks at 3pm UK time.

Elsewhere

Kiwi dollar has surged higher overnight following a jobs report that showed unemployment falling from 4.6% to 4%. Expectations markets are now pricing in a 100% chance that the RBNZ raise interest rates this month compared to a 84% chance before the jobs announcement.

The key for ongoing NZD strength will be the communications of the hike; are we in for a one-and-done rise or can we put the New Zealand economy down as the first G10 nation to start moving towards normality?

Have a great day.

Market rates

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

Euro €1.174 
US dollar $1.391 
Australian dollar $1.880 
South African rand R20.00 
Japanese yen ¥152.0