Delays to Restriction Easing Expected
The Pound failed to gain much support from the mixed UK data releases last Friday. GDP printed close to forecasts as the rebound in services was offset by a weakness in the industrial sector. The NIESR GDP estimate increased by 1.5% for May and a 0.9% increase was forecasted for June bringing the annual increase to 16.1%, but reservations over the underlying economic trends remain. And markets were also cautious over an expected delay to lockdown easing measures on June 21st. Boris Johnson is due to announce the decision today.
Sterling benefitted from a lack of confidence in the Euro and Dollar keeping the Pound relatively firm but still retreated to lows around 1.4100 against the Dollar with the Euro trading around 1.1650. The G7 meeting attempted to focus on more than just Brexit, which limited the potential currency impact. Reports emerged that the government would delay final easing of business restrictions by four weeks in light of the recent surge in Delta variant cases.
Sterling opens this morning just above 1.4100 to the Dollar and 1.1661 to the Euro.
The US dollar continued to gain ground later in the session with the US Dollar Against the Euro dipping to just below the 1.2100 level as the US currency secured wider support on short-covering while commodity currencies posted significant net losses into the close as overall volatility increased.
There is scope for significant dollar short-covering if confidence in a weaker dollar declines. In this context, there was caution ahead of Wednesday’s Federal Reserve policy decision given the possibility of a more hawkish statement and shift in the timing of an expected rate hike.
Euro sellers are currently flirting with monthly bottom amid sluggish trading hours in early Monday. Even so, the bearish bias remains intact for the third day with the single currency trading just over the 1.21 mark heading into the European session.
The market’s rush to risk-safety puts a bid under the US dollar with the cautious mood being traced from the pre-Fed indecision and a lack of major positives for the bloc after the Group of Seven (G7) meeting.
Furthermore, Brussel’s failure to get US President Joe Biden strongly on their side, with regards to Brexit is also weighing on the EUR/USD price.