GBP: Watching the Indian variant closely

EUR: PMIs on Friday crucial for further gains

USD: A quieter week

Sterling

I was off last week and there must be a law written somewhere that when I take a few days break from my screens, markets get thumped. Now that I’m back it may be time to pick up the pieces.

With news reports over the weekend focusing on the prevalence of the so-called ‘Indian variant’ of Covid-19 in certain parts of the country, the reopening schedule in the UK is once again in focus. For now, the data and received wisdom suggests that vaccines are successful in combating this strain but any slowing of the plans to reopen parts of the economy further will be seen as a signal to sell the pound.

In the absence of that, sterling looks optimistic and new highs could be seen as soon as Wednesday with the latest inflation numbers due. If they follow the US’s example last week alongside Friday’s retail sales report then there is only one way sterling should be heading.

Euro

Such strong US data last week should have definitively weakened the euro but its resilience is both unexpected and welcome.

This leads us to two thoughts on the single currency; how willing are ECB members to look through inflation a la the Fed i.e. do rates rise quicker in Europe than in the US and, should this Friday’s PMI data show a strong rebound higher alongside tales of vaccine prevalence and a wider economic reopening then we could be in for another rally for the euro.

With a candidates’ debate for the upcoming German elections on Tuesday night, the euro could also benefit from a strong showing for the Green party that currently remain in the lead in the polls.

US dollar

Despite last week’s surprisingly high inflation reading in the States, the USD has not driven higher and looks like a currency that still has downside to show us. With inflation running at 4% and a Federal Reserve that is still absolutely committed to looking through price pressures as ‘transitory’ then the path for the USD is not one of positivity.

That being said, further market swings like we saw last week will always drive dollar demand from a safety perspective and therefore snapbacks of USD strength cannot be ruled out.

This week’s data calendar is quiet in the US although the minutes from the April meeting of the Federal Reserve released this Wednesday will show us how many members of the FOMC may be thinking that now is the time for a tapering of stimulus.

Elsewhere

Our predictions of a run higher in GBPJPY towards the 155 mark have come true in the past week and although the pair has stalled a little, we still think there is decent upwards momentum to be seen in the coming weeks. We expect the yen to continue its weakening path ahead of its latest GDP report released overnight tonight.

Market rates

Today’s Interbank Rates at 08:19 against sterling. Movement vs yesterday.

Euro	€1.162 ↑
US dollar	$1.411↑
Australian dollar	$1.818 ↑
South African rand	R19.93 ↑
Japanese yen	¥154.1 ↑

Have a great day.