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RationalFX: GBP hits 2 month high vs USD

RationalFX: The pound hit a two month high against the dollar yesterday, up 1.1%, as upbeat economic forecasts and an easing lockdown mixed with dollar weakness to bolster the pound.

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RationalFX


GBP

The dollar has struggled over the last few days following Friday’s disappointing job numbers. This is in contrast to the pound where further re-opening of the UK services sector is expected to provide a further boost. This is as well as the likelihood the Bank of England will raise rates before the Federal Reserve does.

Tomorrow’s GDP number is likely to show an improving economic picture with the contraction over the year’s first three months likely to be 1.6%. This is despite the country starting the year in lockdown. However, if the contraction is much worse sterling may drop again.

Markets also appeared at ease with the Scottish election outcome despite pro-independence parties winning a majority. The pound strengthened as investors don’t see this as a near-term risk as Sturgeon’s party failed to win an outright majority. Boris Johnson still has to approve any referendum vote and the Prime Minister has ruled this out, stating a second referendum would be irresponsible and reckless.

USD

The dollar hovered around a two and half month low as investors bet rising inflation will devalue the currency. This comes as the Fed vowed to maintain its ultra loose monetary policy to aid recovery from the pandemic.

The market will now shift its attention to Wednesday’s CPI and Friday’s retails sales data. This should help gauge inflationary pressures with many now expecting interest rates to stay where they are until 2023.

Yesterday San Francisco Fed President Mary Daly noted bottlenecks like shipping costs and lumber shortages would cause inflation to rise above the 2% target over the next few months. But in her opinion this will be a short term move. She went on to say it’s not even time to start “talking about relaxing the accommodations we’ve given”, another clear sign interest rates will likely stay on hold until the pandemic is over.

Key announcements

10:00 – EUR- German ZEW Economic sentiment

15:30 – GBP- Bank of England Governer Bailey Speaks

Source : ETFWorld.co.uk

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