Market Update

The UK’s economic recovery has recently been overshadowed by new Covid variants leading to a rise in infections, with a daily high of 3,000 cases for the first time since Mid-April. Prompting questions over the further easing of government restrictions on June 21st. UK inflation beat expectations in April, improving by 1.5% largely due to a rise in Oil prices and household energy bills, bringing inflation to its highest level since the start of the pandemic. GDP also rose by 2.1% in the first 3 months of the year due to the successful vaccination program being rolled out in The UK, increasing confidence that the economy can continue to grow. The main focus over the next few months will be the impact on unemployment once the Furlough Scheme comes to an end later this year.

The USD has recovered slightly this morning after reaching its lowest level against The EUR in 3 months. It had been under constant pressure due to The Fed Reserve continually talking down the prospects of tapering their current monetary policy, however comments made yesterday by The Fed Vice Chairman Randal Quarles suggested that the central bank will need to start discussing plans to taper their monetary policy sooner rather than later if the economy continues to show massive improvement as it comes out of the pandemic. Although we expect talks to still be some way off, these comments do show a change in tone.

Key economic releases for USD are due out today and Friday, with weekly jobs data, GDP for the first quarter and Core PCE (Personal Consumption Expenditure). The latter bit of data is a key influence on inflation and will provide The Fed with a key insight into whether the current inflation levels will drop back off as expected or continue to rise. In which case, other measures will be needed to control prices.

The EUR has continued to thrive off the back of USD weakness over the past few weeks with constant downplaying of tapering monetary policy in The U.S, however the focus for longer term stability of The Bloc’s currency will evolve around when The ECB can themselves look to reduce their purchases. ECB Board Member Fabio Panetta reinforced this view yesterday stating that only a continued increase in inflation would lead them to considering any reduction in purchases. The main economic releases to keep an eye on are due out on Friday in the form of Consumer Confidence and Economic Sentiment for The Bloc. Forecasts suggest both data releases will have improved on figures from a month ago, and with countries finally opening up this could provide further support to the currency.

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