London RationalFX

RationalFX: The pound remains well supported against the euro

RationalFX: The pound remains well supported against the euro as we start the new week. It was near to its recent April peak against the euro on Friday and it appears to gradually be trading higher against the euro.

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Even with the weaker than expected May GDP data the pound has not been sold off.

The disappointing 0.8% m/m rise in GDP in May left the economy 3.1% below its February 2020 pre-pandemic peak and suggests that the economy won’t return to the pre-crisis level until a couple of months after our previous forecast of August. The reopening of indoor hospitality in mid-May was the main driver of growth as a 37.1% m/m leap in output in the accommodation & food sector contributed to the overall 0.8% m/m rise in GDP.

The focus for this week will be on the UK inflation data out on Wednesday which the market will again look for clues by how much inflation may rise above the 2% target and if well above forecasts it could add further support to sterling. Thursday will see jobs data which the market will look for clues on whether employment is normalising as the end of the furlough schemes to starts to unwind from the end of July.

Later today Prime Minister Boris Johnson is expected to confirm that the full lifting of covid restrictions but highlight that we must remain cautious. The move into the final stage of unlocking on 19 July has been billed as the moment for people to rely on their own judgment over coronavirus precautions, rather than official prescriptions. And while Johnson will outline the end of virtually all statutory restrictions on everything from business capacity to distancing and mask use, people will still be urged to wear masks in crowded enclosed spaces, with similar vigilance expected over the swift return to workplaces.

A potential change is expected with more people being encouraged to work from home if they can. This has been identified by public health experts as a potentially important factor in determining whether reopening leads to a significant rise in covid cases.

Key Announcements

PM Boris Johnson’s press conference this afternoon

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