25/05/2021

Market report: a good month for the pound and euro


GBP

The pound has been the second best performing currency in the G10 over the past month. This is largely down to the UK’s ongoing exit from lockdown, which is on track to be completed by June 21.

Last week’s economic data added to the optimism and increased expectations a rebound for the economy is en route. Treat this optimism with a little caution, however, as it’s likely there will be a tapering of the furlough scheme and other government support in the final quarter of the year. When this is withdrawn, it could cause a setback.


EUR

The rapid acceleration of the Eurozone’s vaccine programme has boosted the currency against most of its major competitors. It’s now the only G10 currency to outperform the pound over the last month.

Just as the pound benefited from the UK’s vaccine rollout, the Eurozone is now reaping the rewards. The European Commission now expects to vaccinate all eligible adults by July, which should see an easing of restrictions across the continent. This is more good news for the currency and a sign of how well the region has recovered after a lackluster start.

This improved picture comes a few weeks ahead of the next European Central Bank’s (ECB) meeting. A few analysts are now even discussing the chances of a shift in monetary policy. If the meeting is positive, markets may bring forward their expectations of an interest rise, which would further boost the currency.

However, this looks premature as the tightening of policy would invariably lead to the increase in the cost of financing for governments, companies and consumers. This would be counterproductive to helping the economy recover from the pandemic’s damage.


Key announcements 

None


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