Sterling was the best performing currency on Monday, rallying close to 1% against the euro and just over 1% against the dollar.
 
Investors have struggled to pin the pound’s recent decline on one single factor and a clear reason for sterling’s appreciation yesterday is equally illusive. Instead, it seems a combination of factors are at play.

Seasonality is one option. Historically, April is a relatively strong month for sterling as FTSE 100 companies make their dividend payments. Optimism for a post-pandemic bounce has also increased following the re-opening of the UK economy earlier this month. According to market researcher Springboard, the number of people visiting retailers was 88% higher than the previous week.
 
Additionally, market sentiment has seemingly shifted from risk off to risk on since the back-end of last week. This is having a particularly significant impact on GBP/USD where the lessened demand for safe-haven currencies has helped the rate post its best level since February.

According to data yesterday, the UK appears to be coping with pandemic well, showing only four deaths, – the lowest since September 2020. Elsewhere, the European Union and the United States vaccination programmes have come a long way and there is an assumption that the worst of the pandemic is now behind us. A real post-pandemic global recovery finally seems underway.

 
07:00 – GBP – Claimant Count Change (Mar)
actual: 10.1k consensus: 24.5k
 
07:00 – GBP – Unemployment rate (3M) (Feb)
actual: 4.9% consensus: 5.1%
 
09:00 – EUR – ECB Bank Lending Survey

Sterling suffered significant losses against EUR and USD last week as a shift in recovery sentiment caused investors to look elsewhere.

This comes as the UK’s vaccination rate advantage over the EU had diminished, causing increased confidence in the euro.

The UK’s daily run-rate is currently 437,000 vaccinations a day, but the growing need for second doses means the number of first doses is around 90-130,000. This is big drop from 500,000+ in March.

In contrast, the EU’s vaccination rate has accelerated notably as supplies increased. Germany vaccinated nearly 740,000 people last Wednesday, a daily record. While Belgium vaccinated more than 550,000 the previous week, also a new record. France is meanwhile consistently hitting more than 450,000 vaccinations per day.

Vaccination numbers will continue driving sentiment towards GBP. If the UK cannot begin to extend their previous advantage we could see further losses for the pound. Therefore, UK investors will be hopeful that positive data releases this week can give the currency a welcome boost.

Most notably, Britain’s February job market report. This is published tomorrow and a strong job market should keep investors optimistic about Britain’s potential pandemic recovery.

On Wednesday, we’ll then get the March inflation rate data. An impressive rise in inflation could indicate that UK price pressures are rising more than expected. This should prompt the Bank of England to take a more hawkish stance on monetary policy sooner than anticipated.

Towards the end of the week, UK retail sales data will be published, as will April’s Purchasing Manager’s Index projections (PMI). The PMIs will give investors a better idea of how Britain’s economy is performing as it gradually reopens this month.

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The dollar dropped to four-week lows versus other major currencies yesterday. Treasury yields pulled back from last month’s surge and investors are increasingly convinced the US Federal Reserve will keep interest rates low for the foreseeable. 

Many investors remain nervous the Fed could change its tone later this year. Especially if inflation readings swing much higher than expected. But for now they seem content to give them the benefit of the doubt.

Fed Chairman Jerome Powell further reiterated this stance yesterday in his speech at the Economic Club of Washington. He stated the Fed will reduce its monthly bond purchases before committing to a rate increase. 

Sterling got a boost yesterday after the Office for National Statistics (ONS) revealed UK productivity rose by 0.4% last year. However, overall production fell by 10% due to the pandemic.

Despite this, yesterday’s release of February’s GDP reading showed a steady improvement in the nation’s economy despite lockdown. 

12:30 – (USD) – US Retail sales

The pound fell to a seven month low against the euro on Tuesday. This followed the Bank of England’s (BoE) Chief Economist Andy Haldane announcing he would be leaving the BoE’s Monetary Policy Committee (MPC). 

Haldane is famously ‘hawkish’ and favourable towards increasing interest rates. Something seen as a positive for the pound.  

This isn’t the first time Haldane has directly impacted the currency. In February, he actually strengthened the pound after claiming economists and markets might be underplaying the extent of looming inflation in the UK.

Without his hawkish influence on the MPC, it will be interesting to see whether they now delay increasing interest rates. 

The euro is building momentum as investors turn their attentions back towards the currency. After a slow start, the Eurozone’s vaccination program is finally kicking into gear as it moves past the delays and supply shortages that had previously hindered it.

Key states like France, Germany and Italy have now reported an increase in vaccination rates over the past week. 

France delivered 510,000 doses last Friday alone. While Germany have now provided the first jab to 12.7m people. That’s a quarter more than last week. 

Assuming there are no issues, anyone who’s high risk, over 75 or working in health care should be vaccinated by the end of April.

The euro now looks likely to more than make back the losses it made earlier in the year.

3:00pm – EUR –  European Central Bank President Christine Lagarde speaks 

5:00pm – USD – US Federal Reserve Chair Jerome Powell speaks 

March’s US budget deficit hit a record monthly high of $660 billion, it was revealed yesterday. This is the third highest US monthly deficit on record. This followed the distribution of the Biden administration’s latest stimulus package.

The deficit for the first six months of the 2021 fiscal year has now jumped to a record $1.7 trillion compared to a year previous of $743 billion. US Treasury officials stated the pandemic did not have a big impact on the first six months of 2020. This is because increased outlay due to lockdown fueled unemployment and major aid spending didn’t start until May 2020.

USD still started the week optimistically due to the Federal Reserve’s supportive measure, the country’s improving vaccination drive and softer equity markets globally. Data for the day yesterday was sparse so the USD remained range bound throughout the day against EUR and GBP.

Key US data released today will show CPI month on month (m/m). This will again be used as a barometer for inflation and indicate whether interest rates will need to rise faster than the Fed has previously suggested.

We could see a reading well above the forecast due to the increased opening of the economy. So all eyes will be on this afternoon’s reading.

The pound held firm against the euro yesterday as there was little data to really move the market.

Sterling ended last week at around a six week low after losing over 2% vs the euro. Despite this, the UK economic fundamentals look relatively strong. The country’s retail and hospitality sectors opened further yesterday so this could be a temporary downturn for the pound. The two sectors make up a large part of the UK economy and covid cases are continuing to fall. They’re down 25% from last week with deaths down to just seven. 

Today the market is focused on this morning’s UK GDP m/m release. The data was just below forecast at 0.4%. Industrial Production m/m and Manufacturing m/m both beat forecasts of 1.1% and 1.3% consecutively with both being forecast for 0.5%. 

The strong data readings have seen the pound recover marginally against the euro in early trading. Attention will now switch to the German ZEW economic sentiment and euro ZEW later this morning.

10:00am – (EUR) – German ZEW Economic sentiment
10:00am – (EUR) – Euro ZEW economic sentiment-
01:30pm – (USD) – US CPI m/m
01:30pm – (USD) – US core CPI m/m