Sterling falls below 1.3800 against the Dollar
Sterling continued to fall yesterday despite underlying confidence in the UK’s economic recovery. The row with the EU over vaccines however was a significant factor undermining confidence. Prime Minister Johnson stated that he was reassured over EU intentions and that it was vital to avoid vaccine blockades, although he also commented that the third wave in the EU would reach the UK.
Sterling was also hampered by a slightly less confident tone in risk appetite and reservations over the European economic outlook, especially with the UK still facing important tensions with the EU over trade and the Northern Ireland protocol.
The UK currency dipped to lows around 1.3820 against the Dollar before a recovery and also fell against the Euro to 1.1585.
The US Chicago Federal Reserve (Fed) national activity report dipped to -1.09 for February from a revised 0.75 previously. Existing home sales declined to an annual rate of 6.22mn from a revised 6.66mn the previous month and below consensus forecasts of 6.50mn.
The dollar overall gradually lost traction during the day against the Euro recovering towards 1.1950, although the performance for commodity currencies was unconvincing.
Fed Chair Powell and Treasury Secretary Yellen will testify to Congress on Tuesday and both released the prepared text on Monday. Yellen stated that the economy may return to full employment as soon as next year. Powell was less confident on the labour market with comments that the unemployment rate of 6.2% is an underestimate. He also reiterated that the Fed will support the economy for as long as it takes. Rhetoric on interest rates will continue to be monitored closely.
The US, Canada and EU imposed sanctions on China over the treatment of the Uyghurs in Xinjiang. The overall market reaction was measured with the yuan weakening only slightly, although markets were wary over underlying geopolitical tensions.
The single currency continues facing some selling pressure against the Dollar and forces the Euro to leave behind the area of recent tops around the 1.1950 having failed to extend Monday’s advance and now faces selling pressure in the low 1.1900s.
ECB President Christine Lagarde stated on Monday that the near term economic outlook in the Euro area is still very much subject to further uncertainty.
Data to watch
07:50 – GBP – BOE Gov Bailey Speaks
10:00 – USD – Fed Chair Powell Testifies