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Sterling recovers above 1.3700 as UK retail opens

Sterling recovers above 1.3700 as UK retail opens

GBP

The Pound was hampered by fragile underlying confidence on Friday with an expected slowdown in short-term vaccine deliveries raising doubts for the UK vaccine rollout. The Halifax house data reported a 1.1% increase in prices for March bringing the annual increase to 6.5%, up from 5.2% last month. Also, there was some evidence of investors short covering (buying back to close a position) Euros during the day. Sterling tested 2-month lows of 1.3670 to the Dollar and 2-week lows just below 1.1500 to the Euro before a limited recovery. Futures market data revealed a small drop in long (bets on price rising) Sterling positions. Next week’s data will be watched closely given the sharp Pound Sterling retreat just after the latest data was compiled. 

The weekend news was dominated by tributes to the Duke of Edinburgh giving a welcome break from coronavirus developments. The start of lockdown easing, especially non-essential retail reopening today will maintain optimism over the near-term economic outlook. The Pound opens just above 1.3700 to the Dollar and near 1.1550 to the Euro. Reports of an imminent agreement on Northern Ireland trade has yet to positively impact the Pound.

 

USD

US producer prices increased 1.0% for March after a 0.5% increase the previous month and above consensus forecasts of 0.5%. The year-on-year increase strengthened to 4.2% from 2.8%, the strongest increase for over 9 years while underlying prices increased 3.1% over the year from 2.5% previously.

Federal Reserve (Fed) Vice-Chair Clarida stated that substantial progress means actual progress, reiterating the comments from other officials. He also stated that there was still a big hole in the labour market. There were potentially significant comments on inflation as he added that if inflation at the end of the year has not declined from where it is at the middle of the year that might be good evidence that inflation is not transitory. The implications would be that the central bank would be looking to withdraw some stimulus if that was the case. This opened the dollar to a slightly more hawkish interpretation, although the immediate market impact was limited.

Fed Chair Powell stated that re-opening the economy too quickly was a principal risk and that the central bank will provide support until the recovery is complete. He noted that the bank wants inflation moderately above 2.0% for some time, but does not want it materially above 2% or a return to the bad old days. There were further uncertainties about whether the tough balancing act would be achievable.

 

EUR

The Euro continues to lack any firm directional bias against the Dollar and remains confined in a narrow trading range. Trading overnight just below the 1.1900 mark. 

There isn’t any major market-moving economic data due for release on today, either from the Eurozone or the US, leaving the pair at the mercy of the US Dollar price dynamics.

 

Data to watch

13:00 – USD – 10-y Bond Auction

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