GBP: Not able to break through
EUR: Keep an eye on local shares
USD: Longer term weakness should prevail
Sterling continues to bump its head up against the 1.42 level this morning. Ongoing strength for the pound depends on two things; the likelihood of further reopening come June 21st and the chances that the Bank of England talks up interest rate hikes sometime soon.
We received news on both yesterday with neither unable to push sterling higher.
Whilst Boris Johnson told reporters yesterday that there was nothing in the current data to delay the June 21st reopening other voices in Westminster have suggested that this decision is more in the balance.
Similarly, whilst members of the MPC can talk up interest rate hikes for the 2nd half of next year, if that member won’t be there to enact that vote the chatter is less than impactful. Keep watching for how the UK exits the furlough scheme; that will be the key determinant of demand in the coming months.
Investors are continuing to buy European shares over those in the US, boosting the euro especially against the USD. We expect share values in Germany, France etc to continue their recent ride higher, further adding to the euro’s attraction.
Those at the ECB will not be alarmed by the rate of euro appreciation yet but have been quick to stamp out any concerns that they were in a position to talk about a reduction of pandemic-related stimulus at their meeting on June 10th.
Consumer confidence at 10am BST could also offer support.
A number of people in markets are focused on today’s end of month flows in the USD which could prompt a temporary spike for the dollar. While this may happen, the longer term issues for the USD remain and we cannot look beyond those at the moment.
Today’s data picture will throw those into sharp context. A new round of spending announcements from the Biden administration are due – which will not be paid for by taxes but instead by borrowing – and today’s trade data should show the level of the US deficit with the rest of the world has exploded.
In a world wherein the US dollar had an attractive yield this would not be an issue, but it doesn’t and money is leaving the USD for emerging markets. That will continue to act against the dollar for the foreseeable.
The Chinese yuan continues to run higher against the USD. It looks more than anything that the PBoC is happy to let markets dictate exactly where the currency should be going from here. Optimists will be looking for a rate around 6.25 – around a 2% decline in the dollar from current pricing.
Today’s interbank rates at 10.38 against sterling. Movement vs yesterday.
|US dollar||$1.418 ↑|
|Australian dollar||$1.837 ↑|
|South African rand||R19.60 ↑|
|Japanese yen||¥154.8 ↑|
Have a great day and a better weekend.
We’ll be back on Tuesday.