GBP: Huge data week

EUR: Longer term weakness evident

USD: Stronger as issues remain

Sterling

There is a lot of UK data out this week and following the Bank of England’s optimism a fortnight or so ago, these releases will be the first opportunity for the market to see whether the data backs up that level of confidence.

We lead off with employment data tomorrow, inflation data on Wednesday with retail sales and consumer confidence on Friday morning. These four indicators are crucial for the ongoing narrative of how the UK economy has continued its recovery following last week’s GDP release.

Dollar strength from risk-off behaviour may cap GBPUSD’s ability to push to and beyond the 1.40 mark but strong data this week should be enough to allow the pound to keep turning the screw on the euro.

Euro

The euro’s little surge on Friday took a lot of people by surprise and a weaker investment atmosphere could be to blame. We have seen the euro sell off when things are globally going well and the mood has shifted over the weekend, potentially offering the euro some support.

In the longer term the inability of the ECB to talk about higher rates in a meaningful manner should keep the single currency under pressure and we expect both GBP and USD to continue to outperform the single currency.

USD

I feel uneasy this morning, and with USD, JPY and CHF all moving higher this morning as well it’s clear that markets are also a little bit nervous. Haven currencies are catching a bid this morning as investors process the two main news stories of the weekend: global Delta variant cases rising and the fall of Kabul to the Taliban.

It is too early to say just what kind of reaction markets will have to the wider re-emergence of Taliban power in Afghanistan and what it means for the US-led coalition that spent so many years there. For now however it is unlikely to lead to an outpouring of optimism.

More crucially for the USD this week will be the minutes of the most recent Fed meeting that will further underline the push towards tapering and likely offer further USD support. These are released Wednesday evening.

Elsewhere

This week is really interesting test of optimism from the world’s central banks. Whilst the Bank of England and Federal Reserve are inching closer and closer to a change in policy we could see two rate hikes announced this week; one from the Reserve Bank of New Zealand and one from the Norges Bank. Both hikes are priced in so the effect on the currencies may be minimal – unless the authorities fail to deliver – so we may see both NOK and NZD a little lower by the end of the week.

Market rates

Today’s Interbank Rates at 09:13 against sterling. Movement vs Friday.

Euro	€1.176  ↓
US dollar	$1.385  ↓
Australian dollar	$1.888  ↑
South African rand	R20.42 ↑
Japanese yen	¥151.6  ↓

Have a great day.