ETFWorld.co.uk
London RationalFX

RationalFX: GBP just can’t escape Covid

RationalFX: Sterling struggled against the euro and dollar on Wednesday as the UK’s worsening Covid situation and downbeat economic data dented the currency.

Sign up to our free newsletters


RationalFX


GBP

The UK reported 26,068 new Covid cases yesterday, the third day in a row cases have surged above 20,000. This is now the highest number since January 29th. Crucially, hospital admissions and fatalities are far lower than they were then. January 29th saw 1,245 deaths and 33,847 hospitalisations, yesterday there were 14 deaths and 1,720 hospital admissions.

To add insult to injury, UK GDP for Q1 was revised lower to show a greater contraction than first estimated. According to the Office for National Statistics, GDP contracted by 1.6% in Q1. Estimates had been 1.5%. This means the GDP reading was actually 8.8% lower than pre-pandemic levels rather than the 8.7% estimated. This has put temporary pressure on sterling as the economy must make up even more ground to return to pre-pandemic levels. Despite the downward revision, the contraction is still far lower than the 20% contraction seen in the first lockdown.

USD

The dollar rallied yesterday, benefitting from safe-haven flow and some hawkish comments from Dallas Federal Reserve President Robert Kaplan.

Speaking yesterday, Kaplan called for the Fed to “take the foot off the accelerator” and signalled it should taper its bond-purchases earlier than the end of the year. Kaplan said bond purchases were useful to stimulate consumer demand after the pandemic drastically reduced it. However, Kaplan feels there’s no longer a demand issue. Instead, businesses are now facing supply-side issues with employers struggling to find workers and facing logistical issues – something bond-purchasing won’t alleviate.

Kaplan also said he expects inflation to hit 3.5% this year, before falling back to 2.4% next year, still above the Fed’s 2% target.

Crucially, Kaplan currently isn’t a voting member of the Fed so his comments don’t hold as much weight as a voting member. Nevertheless, the comments fall in line with the current market narrative that the Fed may raise rates as early as 2023.

Key announcements

07:00 -EUR -Retail Sales (YoY) (May)contracted -2.4% from expectations of 10.1%

08:00 – EUR – ECB Lagarde Speech

15:00 – USD – ISM Manufacturing PMI (May) consensus 61

Source : ETFWorld.co.uk

Related Articles

RationalFX: Uncertain week for GBP

Editorial Staff

RationalFX: GBP staying strong

Editorial Staff

RationalFX: GBP surges again

Editorial Staff