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Pound Dollar opens just below 1.4200

Pound Dollar opens just below 1.4200

GBP

The Pound dropped against the Dollar yesterday, but held above 1.4100 despite choppy trading triggered in part by some European markets being closed for the Whit Monday bank holiday. Optimism persisted for the economic recovery, but there was further uncertainty as to whether strong demand had been priced in. The Euro pushed to highs of 1.1560 on expectations of greater upside potential within the Eurozone.

Bank of England Governor Bailey reiterated to the Treasury Select Committee that the bank does not plan to use negative interest rates, and that recent inflation influences are temporary and would not become entrenched. He also noted that the economic recovery was quite unbalanced and that inflation had to be watched carefully. Chief economist Andy Haldane noted that upside inflation surprises could require monetary policy action (possible interest rate hike). Overall, the rhetoric used was pretty much as expected and provided modest Sterling support and the Pound consolidated just above 1.4150 to the Dollar.

EU Commission President Ursula von der Leyen stated that there is no alternative to the Irish protocol, but markets are not focussing on this issue yet. 

Sterling opens near 1.4200 to the Dollar this morning with the Euro around 1.1600.  UK Government borrowing data has printed slightly below consensus forecasts.

 

USD

Federal Reserve (Fed) Governor Brainard stated that the US economy is in the middle of an unprecedented rebound. As far as inflation is concerned she commented that higher prices are linked to a surge in demand with bottlenecks and supply chains also contributing to pressures. She expected that these pressures would subside over time. She also commented that the central bank had the tools to guide inflation lower if price pressures move persistently above goals. The overall rhetoric was very close to remarks from Chair Powell.

St Louis Fed President Bullard stated that we are not quite there to be able to speak about tapering, but it was not the time during the pandemic. Kansas City head George stated that it will take time for the economy to enter the new normal, but that there will be a time when talking about tapering will be important. She also commented that it is hard to distinguish between one-off bottlenecks and a broad lack of capacity while she does not dismiss the risk of higher inflation. The comments could have a slightly hawkish tinge, but there was no hint of a move from the Washington Governors.

 

EUR

The Euro is trading above the 1.2250, benefiting from Dollar weakness and Europe’s reopening. 

ECB President Christine Lagarde shrugged off the expectation of winding up the bond purchasing program with Eurozone Finance Minister Paschal Donohoe also remaining optimistic about the economic recovery but showed some concerns about the challenges of not falling too behind China and the US. The comments hold back some of the gains for the EUR/USD pair.

On the docket this morning, important data coming out from the German IFO Business Climate for May. A beat on figures may push the single currency higher, whilst a miss could do the opposite. 

 

Data To Watch 

09:00 – EUR – German ifo Business Climate 

15:00 – USD – CB Consumer Confidence

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