19/07 – Freedom or Freedumb?

Jeremy Thomson-Cook
Jeremy Thomson-Cook 19 July 2021

GBP: All eyes on our new guidelines

EUR: ECB meeting this week

USD: Quiet on the data front

Sterling

Sterling is stuck between a bit of a rock and a hard place this morning. On the upside for the currency, we have Bank of England speakers this afternoon who are likely to add a tone of hawkishness on inflation into the policy environment, further prompting the belief that the Bank of England may feel the need to raise interest rates at some point next year as the UK economy recovers.


The other side of that conundrum is the loosening of Covid-19 restrictions just as case numbers start to look like they did last winter. The world is watching what happens in the UK as a test bed for the resilience of a mostly single shot vaccinated populace to the delta variant of this virus. Given the increase recently in cases we’re probably about a week from finding out how hospitals are coping, but we do know that some hospital trusts are already having to cancel operations to battle Covid.


Sterling remains vulnerable to the downside in this situation and bears will be looking for prices below $1.37 and €1.16 respectively.

Euro

It’s another ECB week and once again our minds are focused on EUR downside as opposed to upside. Our reticence to call the single currency higher hinges on two things; the recent change in inflation policy that allows them to target prices rises above the 2% level without a subsequent need to raise interest rates, and the continued outperformance of US equities over their European counterparts.


The ECB meeting takes place this Thursday and we expect both EURUSD and GBPEUR to remain quiet until then.

USD

The dollar is a little stronger this morning against G10 currencies as investors continue to dance around the prospect of a Fed that wants to taper stimulus or one that feasibly cannot still given the US jobs market’s performance in recent months.


The US data calendar is relatively quiet this week and so we expect the dollar to take its cues from Thursday’s ECB meeting and general moves in risk. Overall, if the reflation/recovery narrative remains strong, the dollar should remain weak.

Elsewhere

The AUD has been a strong performer through the pandemic but overnight has hit a 7-month low as lockdown measures have been both tightened and extended in some states. For anyone looking for an idea as to what might happen to sterling if there is another lockdown, you may need to only look down under.

Market rates

Today’s Interbank Rates at 08:18 against sterling. Movement vs yesterday.

Euro €1.164 ↓
US dollar $1.372 
Australian dollar $1.862 
South African rand R19.87 
Japanese yen ¥150.9 

Have a great day.