12/05/2021

Market report: pound stays strong against dollar


GBP

Sterling’s recent gains against the dollar continued yesterday, ending a third consecutive day at multi-week highs.  The rally was mainly down to persistent dollar weakness and a vague sense of political calm.

Encouraging news regarding the pandemic is also having an impact. Covid cases are dropping rapidly and lockdown restrictions are easing further this Monday, both boosting the pound.

This morning’s UK GDP data release showed the economy shrank 1.5% during the first quarter of this year, beating expectations of 1.6%. The UK economy’s lengthy lockdown at the start of the year was the driving factor for the shrinkage. 

However, as lockdown eased, March saw a strong recovery as the economy grew 2.1%, boosted by retail spending and schools reopening. But this wasn’t enough to stop the economy from contracting.

The outlook for the year’s second quarter remains positive as the vaccination rollout continues and further easing of restrictions is likely to increase economic activity, aiding recovery and an expansion of GDP.


USD

It could be a volatile day for the dollar ahead of the release of US inflation data. Forecasts are predicting inflation to come in lower than expected with CPI month on month forecasted at 0.2% from a previous 0.6%.

Any surprise which shows an upside to inflation could see the Federal Reserve intensify the taper debate, a move which would see treasury yields rise, boosting the dollar.

On the other hand, a relatively soft or in-line reading on inflation might be viewed as a disappointment and cause traders to unwind bets for a less-dovish FOMC.


Key announcements

07:00 -GBP- GDP Q/Q – actual figure -1.5%

07:00 – GBP- GDP M/M – actual figure 2.1%

07:00- GBP- Manufacturing production – actual figure 2.1% from previous 1.5%

10:00 -EUR– EU economic forecast

10:00 -GBP- Governor Bailey speaks

13:30 -USD- Core inflation m/m – Forecast 0.2% from previous 0.6%

13:30 -USD- Core CPI inflation – unchanged at 0.3%


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