21/06 – Tough week for sterling ahead

Jeremy Thomson-Cook
Jeremy Thomson-Cook 21 June 2021

GBP: Pushing lower

EUR: Lagarde to keep euro pressure strong

USD: Keeps gaining as Fed members rally round tapering

Sterling

Rising Covid-19 case numbers, a stronger dollar, Brexit back in the headlines and a bi-election loss for the government are all weakening sterling this morning with little sign of an immediate recovery before Thursday’s Bank of England meeting.

Market expectations for the path of interest rates in the United Kingdom suggest a rate rise in August of next year, well ahead of the Federal Reserve and European Central Bank. Confirmation of those thoughts will help sterling in the short term but there remains a very strong risk that pound finds itself below the 1.37 mark against the USD over the course of this week given Brexit headlines and the rise in the delta variant.

Euro

As noted on Friday, the European Central Bank will be more than happy with the path of EURUSD over the past 4 days. ECB President Lagarde speaks this afternoon at 15.15 BST to the European Parliament and is expected to continue making the difference clear between the US and European economies clear.

A push to the 1.17s in EURUSD this week is not out of the question.

US dollar

The USD has continued to strengthen over the weekend following further comments from Fed officials that the discussion on tapering stimulus was now formally open. We are now in an uncertain period of whether the Fed really wants to run the economy hot or has already given itself a scare with inflation pressures rising.

In this circumstance it seems pretty obvious that comments from Fed members will closely watched with two making comments on the state of the US economy at 14.45 BST this afternoon.

Fed Chair Powell speaks to Congress tomorrow and would represent the first opportunity for him to clarify his comments should the market reaction be predicated on false hope.

Elsewhere

The safe havens of the yen, Swiss franc, dollar and the euro to a certain extent are all higher this morning thanks to sell-offs in Asian markets overnight and without much guidance from the US given it’s a public holiday.

Market rates

Today’s interbank rates at 08:50 against sterling. Movement vs yesterday.

Euro €1.164 ↓
US Dollar $1.383 ↓
Australian Dollar $1.844 ↑
South African Rand R19.82 ↑
Japanese Yen ¥152.2 ↓

Have a great day.