RationalFX: Coronavirus restrictions came to an end in England yesterday in what a was dubbed Freedom day.
With all economic sectors now able to re-open, analysts were hoping for a rebound in the pound. This wasn’t the case.
Any potential positive impact on UK growth expectation was offset by unease over the sharp increase in coronavirus cases and unease that restrictions could be re-imposed later down the line.
The UK reported over 48,000 new cases yesterday but hospitalisations still remain low. The increase in UK cases, despite a strong vaccination programme, also increased concerns over underlying global vulnerability.
Global risk appetite remained fragile on Monday with further concerns over the impact of the Delta variant on the international economy.
The GBP/EUR exchange rate also fell to its lowest level since early June before slightly recovering.
New covid cases are also surging in Europe and the US as the delta variant spreads, largely among the young, unvaccinated and the partially vaccinated. The US is averaging about 26,000 daily cases in the last seven days, more than double the average from a month ago.
As a result the safe-haven USD experienced strength during yesterday’s trading with USD/GBP hitting three month highs.
Finally, concerns over the delta variant were still apparent in the MPC as external member Jonathan Haskel spoke yesterday. Known to be one of the most consistent doves, he said ‘for now, tight policy is not the right policy. The economy is not fully recovered yet and faces two headwinds over the coming months: the highly transmissible Delta variant and a tightening of the fiscal stance”. Very different to Michael Saunders and Dave Ramsden’s opinions last week, it highlights the difference in opinion of those who decide on monetary policy and how far we are from an interest rate rise.
Source : ETFWorld.co.uk