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RationalFX: covid cases drop to give GBP hope

RationalFX: Last week was a reminder to traders just how quickly market sentiment can shift. Sterling struggled at the start of the week as concerns over a third wave took their toll.

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GBP

But it found new strength towards the end as cases began to drop. Those slight gains remained this morning as numbers stayed low. However, the impact of last week’s ‘freedom day’ on case numbers is yet to be announced.

With the economy now fully open, investors had hoped it would really start to rebound. Unfortunately, the recovery has actually begun to slow. The IHS marketing manufacturing reading, released last Friday, came in at 60.4 in July, down from expected 63.9. While services PMI read 57.8, down from an expected 62 and composite PMI came in at 57.7, down from an expected 61.9.

The slowdown is likely due to three factors: rising delta variant cases, inflationary pressures and, a severe lack of workers. Thousands are currently self isolating after being ‘pinged’ by the track and trace app. This has caused worker shortages across key areas of the economy, with businesses and supply chains suffering significantly.

Sterling will remain at the mercy of covid this week. A further drop in case numbers and deaths will drive the pound higher and vice versa.

USD

All eyes this week are on Wednesday and Thursday’s US Federal Reserve. Investors will be keen to understand the bank’s view on rising inflation and although policy isn’t set to change, changes in tone could significantly impact the market.

Key announcements

11:00am – GBP – Bank of England’s Monetary Policy Committee member Dr Gertjan Vlieghe speaks

Source : ETFWorld.co.uk

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