The stronger US dollar is pushing cable lower, closer to the lows of March and April at approximately 1.3650, which also happens to be the 200-day moving average. The pound, on the other hand, has been steadily rising against the euro, with EUR/GBP approaching the April low of 0.8472. MUFG Bank economists have a bullish outlook for the pound against the euro in general “The pound has benefited from the hawkish repricing of BoE rate hike expectations that was brought forward after the last FOMC meeting. Market participants still expect the Bank of England to follow the Fed’s lead and adopt a more hawkish policy stance, perhaps paving the way for rate hikes as early as next year.”
“We expect the Bank of England to wait until later this year/early next year to send a stronger signal that rates are likely to start rising from next year, after they have a better understanding of the impact on the UK labor market when government assistance measures are phased out.”
“If cases continue to climb dramatically, the proliferation of the new Delta variety, even if it does not trigger tighter limitations, threatens to damage confidence. Yesterday, BoE Chief Economist Haldane expressed concern that inflation could reach over 4% by the end of the year, significantly eroding buying power. Market players will be looking for any new policy signals in Governor Bailey’s annual Mansion House speech today.”
“By extending the grace period for shipments from the United Kingdom to Northern Ireland, the EU has agreed to a temporary ceasefire with the United Kingdom in the’sausage war.’ The grace period on refrigerated meat products, which was set to expire on July 1st, has been extended for another three months. Britain has welcomed the extension but is committed to finding a long-term solution. The ceasefire lessens the danger of a flare-up in trade hostilities between the EU and the UK, as well as the pound’s near-term negative risks.”/n
