Sterling below 1.16 against Euro
Global risk conditions were more fragile yesterday as volatility increased. This caused Sterling to slide with the currency retreating to below 1.4150 against the Dollar.
Markets were monitoring coronavirus developments in the UK given the rise of the Indian variant. There was however optimism that the current vaccines are effective against the variant and that the transmission rate was lower than feared. Reports suggested that the government remain confident that the ending of coronavirus restrictions can go ahead on June 21st which helped support Sterling.
Despite this, Sterling edged lower throughout the day as the impact of market volatility dominated. The Pound opens just below 1.16 on the Euro and below 1.4150 against the Dollar.
St Louis Fed President Bullard stated that inflation would remain above 2% in 2022, but he also considered that this would be consistent with the policy framework. He added that the labour market was tighter than it appeared and that the Federal Reserve (Fed) would have to tolerate higher inflation during the current boom time.
Minutes from May’s Federal Reserve meeting stated that there was still a long way to go to meet the central bank’s goals and that it would likely take some considerable time before significant change is made. The minutes also reiterated that inflation pressures were likely to be transitory while bottlenecks would hold back output in the near term. A number of members stated that a discussion of tapering might be appropriate at some point in upcoming meetings if the economy continues to make rapid progress towards the committee’s goals. The language on tapering was still relatively dovish, but slightly stronger than had been expected on the tapering issue and the dollar posted net gains.
The Euro is currently hovering just below the 1.22 mark against the Dollar, heading into Thursday’s European session.
Looking forward, Germany’s Producer Price Index (PPI) for April and comments from the ECB President Christine Lagarde will be followed for fresh impulse.
Data to watch
13:30 – USD – Philly Fed Manufacturing Index
13:30 – USD – Unemployment Claims