The UK economy looks to be in rude health with economic growth picking up sharply over the last quarter. According to the latest Bank of England (BoE) report, the recovery in economic activity is ‘most pronounced’ in the consumer-facing services sector after Covid restrictions were loosened in April, with output in some sectors ‘around pre-Covid levels.’ The BoE expects the UK economy to grow by 7.25% this year, supported by the successful vaccination program and continued unwinding of lockdown measures, while the Confederation of British Industry (CBI) is more bullish and expects UK GDP to grow by 8.2% this year and 6.1% next year.
This bullish backdrop may come under pressure when the Government’s furlough scheme ends at the end of September. The Office for National Statistics (ONS) said recently that the percentage of workers on furlough has dropped from 20% in late January this year to 7% in late May, although this still leaves 1.5 million workers on the scheme. The end of Q3 will be an important time for the government if they are to get unemployment back down to pre-covid levels.
Price pressures in the UK are also pushing higher with annual inflation hitting 2.1% in May, above the central bank’s target. The BoE expects inflation to exceed 3% for a temporary period, driven higher by energy and commodity prices. This outlook has prompted the market to bring forward thoughts of UK interest rate hikes, although if the recent developments in the US are anything to go by, the BoE will hold back on hiking rates until hard data makes it difficult to avoid.
The Euro has idled even as most of its major counterparts saw violent price moves against the US Dollar. Indeed, even the Swiss Franc – which tends to track closely with the single currency’s moves against the Greenback – has been three times more volatile this week.
This probably reflects traders’ reluctance to commit one way or another ahead of today’s monetary policy announcement from the ECB. The central bank will begin to unveil how the comprehensive policy review that it has just concluded will be reflected in its current posture.
It seems to be a given that the underlying message will be decidedly dovish. The ECB has already increased its inflation target to 2 percent having previously aimed just below that level and promised to be “forceful or persistent” in reaching it.
Central bank President Christine Lagarde fanned the flames of speculation, saying that “interesting variations and changes” are to be expected. She told Bloomberg in an interview that “given the persistence that we need to demonstrate to deliver on our commitment, forward guidance will certainly be revisited.”
Daily FX Market Analysis–22nd July 2021
GBP>EUR – 1.1662
GBP>USD – 1.3745
EUR>USD – 1.1784
GBP>CAD – 1.7281
GBP>AUD – 1.8654
GBP>SEK – 11.935
GBP>AED – 5.0467
GBP>HKD – 10.680
GBP>ZAR – 19.996
GBP>CHF – 1.2557
· EUR ECB Interest Rate Decision
· EUR ECB Monetary Policy Decision Statement
· EUR ECB Deposit Rate Decision
· EUR ECB Press Conference
· AUD RBA's Governor Lowe speech
- Forex Today: Cheerful mood depresses dollar, ECB could weigh on the euro, Musk lifts Bitcoin
- Australian Treasurer Frydenberg: Lockdowns cost the economy around USD220 million a day
- China’s Commerce Ministry: Foreign trade growth expected to slow down in H2
- GBP/USD jumps to 1.3750, dismissing Brexit, covid concerns
This document has been prepared solely for information and is not intended as an Inducement concerning the purchase or sale of any financial instrument. By its nature market analysis represents the personal view of the author and no warranty can be, or is, offered as to the accuracy of any such analysis, or that predictions provided in any such analysis will prove to be correct. Should you rely on any analysis, information or report provided as part of the Service it does so entirely at its own risk, and Frank eXchange Limited/Manor House Foreign eXchange Limited accepts no responsibility or liability for any loss or damage you may suffer as a result. Information and opinions have been obtained from sources believed to be reliable, but no representation is made as to their accuracy. No copy of this document can be taken without prior written permission.