Sterling Records Stellar Gains
The government confirmed that the UK coronavirus alert level had been reduced to 3 from 4 previously due to reduced transmission, it also confirmed that the further easing of restrictions would take place next week in England. This will include the re-opening of indoor hospitality which should underpin business and consumer confidence.
Although the SNP won a further term in the Scottish election, short-term risk of a second referendum remained low amid a pandemic focus. Sterling moved sharply higher to 10 week highs near the 1.4150 against the Dollar and to 1.1635 against the Euro.
There were stronger market expectations that the Federal Reserve (Fed) would maintain very low interest rates for even longer in an attempt to foster maximum employment.
Chicago Fed President Evans stated that last week’s jobs numbers were definitely surprising, but expects that it will be a one-off. He noted that he would not be concerned with a 2.5% inflation rate if it is consistent with a 2.0% rate over time. He added that attention would need to be paid to wages and whether this would lead to sustainable inflation over the medium term. In this context, Evans stated that he did not expect that it would with an easing of pressures once bottlenecks are worked out. Dallas Fed President Kaplan stated that he still expected strong jobs growth this year and continued to push for a tapering of bond purchases next year while San Francisco head Daly reiterated that it was not yet time to talk about a tapering of bond purchases.
The buying interest surrounding the Euro has kept the single currency buoyed overnight against the Dollar. The pair opened lower on Tuesday morning, but is looking at recouping strength and push past the 1.2130 area where it trades currently.
A pick up in the covid vaccination drive and partial reopening of the economy help in improving the economic forecast for the Old Continent with optimism aiding the single currency to gain some traction.
As for now, investors await the release of the German Wholesale Price Index for April, Germany ZEW Survey.
Data To Watch
15:30 – GBP – BOE Gov Bailey Speaks