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RationalFX: Sterling Maintaining Support

RationalFX: The pound has continued to be well supported against the Euro as growing concerns of another Covid outbreak across the bloc heighten.

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Most recently, Austria, have imposed a national lockdown and other countries may start to follow suit. Yesterday, Italy also announced further restrictions.

Most notably, Germany is in the spotlight. The powerhouse of the bloc, yesterday passed the milestone of 100,000 Covid deaths and the situation still remains critical. The new coalition government leader, Olaf Scholz, said ‘ vaccinations wills now become compulsory for targeted groups’. With the powerhouse of the bloc in such a dire situation, it is hard to see any positive momentum coming to Euros way. This current state of play ultimately sours consumer sentiment, thus allowing GBP/EUR to trade at these yearly highs.

Across the pond, yesterday saw the release of a string of data which allowed the dollar to continue its run of strength. As expected, Core Personal Consumption Expenditures (PCE) Index read 0.4% MoM. Unemployment claims also fell to 199k, down from a previous 270k and the University of Michigan consumer sentiment index read 67.4, up from 66.8 previous.

We also saw the release of the latest FOMC minutes, something investors were keening awaiting after recent inflation data. The minutes stated that a number of  policymakers were open to the idea of the FED ‘being prepared’ to alter the pace at which asset purchases are reduced. In addition, Mary Daly, the San Francisco president also commented that she would support an expedited tapering.

Ultimately, should current US inflation remain high and the US labor market continues to move closer to pre pandemic levels, it is hard to see any reason for the FED to oppose.

A faster taper from the FED should see further losses on cable and continue to support the Dollar. We are currently trading at 17 month highs on USD/EUR and yearly highs on USD/GBP .

Events:

13:30 : ECB present Lagarde speech

14:05 : MPC member Haskel speech

17:00 : BoE Gov Bailey speech

Source : ETFWorld.co.uk

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