GBP lower as Freedom Day marred by more covid cases

Do you feel Free? Those in most of the UK should be feeling liberated and unchained because they don’t have to wear masks anymore and can meet more of their friends….in pubs. Awesome. However, many establishments and shops are still asking people to wear masks and to ‘socially distance’. Cases of delta variant covid are on the rise but, mercifully, the numbers of hospital admissions remain restrained and the death rate for those with a positive test is still nowhere near as bad as it was at the peak of the pandemic. The vaccination program has paid off.

So, whilst we are on the verge of understanding that covid-19 isn’t likely to be eradicated soon and further variants will emerge, we can take some small steps towards normal life…whatever that means.

The foreign exchange markets have reacted to the rise in UK cases by selling the Pound. GBPUSD is down to $1.3750 this morning and the GBPEUR rate is as low as €1.1650. That is despite another rise in UK house prices (0.7% on the month according to Rightmove) and a Deloitte report showing UK consumer confidence is back to pre-pandemic levels. We also had a very encouraging survey from the Federation of Small Businesses. It would suggest that, once covid cases start to plateau, the Pound has plenty of upsides.

USD advances on safe haven buying

The rise in covid cases across the globe is causing the US Dollar to strengthen, boosted by investors seeking the safety of US treasuries. I mentioned the GBPUSD rate being low but EURUSD is down to $1.18 and, for example, the USDAUD rate is AUD 1.3540 this morning, its highest since December 2020.

Commodities level off, weakening AUD and CAD

That AUDUSD rate isn’t all a US story though. The covid concerns have weakened Asian markets overall and the Aussie exports to Asia have knocked the AUD. GBPAUD is up to AUD 1.8630 this morning. That is the highest level we’ve seen since May 2020. This pair has previously struggled to get above AUD 1.8750, so may do the same again and that makes this is a great level for Aussie Dollar buyers.

Caution over the Asian markets also tends to knock commodity prices. Whilst Iron Ore remains strong, copper and gold are down $20 or more from last week’s highs. That and other commodities affect the Canadian Dollar due to their large-scale raw material exports. The GBPCAD rate is up to CAD 1.74 for the first time since April. This level has capped the GBPCAD rate on several occasions, so please don’t assume it will carry on higher. There is no guarantee of that.

And, whilst today’s data diary has nothing but tumbleweed rolling across it, there is a lot to think about in the week ahead. We will see the minutes from the last Reserve Bank of Australian meeting overnight and Australia’s retail sales data the day later. The European Central Bank will leave their base rate on hold on Thursday but may edge further towards tighter monetary policy in their statement. US weekly jobless claims on Thursday will impact the USD and Sterling traders will be ready for Friday when retail sales and three flavours of purchasing managers indices will be published. So brace yourselves.

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