British pound under pressure against the US dollar

• US dollar (USD) gaining ground against a host of major currencies, including the British pound (GBP)
• British pound (GBP) is unlikely to see a repeat of the rapid gains experienced during early 2021
• US focuses on the release of US manufacturing PMI and unemployment data
• German inflation forecast to surpass European Central Bank (ECB) target of 2%
• Canadian dollar to US dollar exchange rate (CAD/USD) reaches six-day low
• Thai Baht (THB) declines
• Singapore stocks take a tumble due to coronavirus fears

The British pound (GBP) has come under further pressure against the US dollar (USD) during the beginning of London’s trading session. However, currency analysts at Barclays bank state that the pound Sterling (GBP) will be supported over the coming weeks but is unlikely to experience the significant gains seen during the beginning of 2021.

Marek Raczko, a foreign exchange analyst at Barclays, confirmed that the British pound (GBP) continues to be underpinned by the UK’s successful coronavirus vaccination efforts. Although gains in the British pound (GBP) may be limited, investors can still expect some appreciation in the currency over the coming months.

The UK has recently seen a robust economic recovery triggered by the reopening of non-essential businesses. The UK’s economic reopening led to a significant rise in inflation last month, which surpassed the Bank of England’s (BoE) target inflation rate of 2%. As a result, the BoE is expected to raise UK interest rates earlier than expected and is likely to occur during 2022.

Recent flash purchasing managers index (PMI) data for UK manufacturing provided optimism, with a better than expected reading of 64.2, highlighting strength within the UK labour market.

The BoE upgraded their forecast for the UK economy during their monetary policy meeting last week, anticipating the UK economy to have significantly recovered from the coronavirus pandemic in 2022.

The Federal Reserve has also indicated that they will raise US interest rates sooner than anticipated and will likely occur in 2023, having previously planned to do so in 2024. As a result, the US dollar (USD) has outperformed many of its major currency rivals over recent weeks and is particularly dominating the British pound (GBP) today. During the start of today’s trading session, the British pound to US dollar (GBP/USD) exchange rate stands at USD 1.3852.

Data indicates the US dollar (USD) has become the best performing currency during June 2021, edging higher against its major currency counterparts.

Marvin Barth, a market analyst with Barclays bank, highlighted the US is the fastest-growing economy within G10. However, with both the BoE and the Fed implementing policies that are supportive of their respective currencies, there is the possibility that the British pound to US dollar (GBP/USD) exchange rate could become deadlocked.

Marek Raczko states that the British pound to US dollar (GBP/USD) exchange rate could also face further pressure if the Federal Reserve tightens monetary policy and actions unmatched by the Bank of England.

Currency analysts predict the British pound to US dollar (GBP/USD) exchange rate will remain steady over the coming months, anticipating that the currency pairing will regain the USD 1.40 level by the end of 2021.

US prepares for manufacturing PMI and unemployment data

The US economy is preparing to release US manufacturing PMI and unemployment data this week, both of which are set to show promising results.

The US manufacturing sector accounts for 12% of total jobs within the US, and PMI readings are set to show an increase compared to May’s results. US manufacturing PMI for June 2021 is set to rise to 62.6, up from 62.1 experienced the previous month. A consistent reading above the 60 mark is an indication that the US economy is seeing significant recovery, primarily boosted by coronavirus vaccination efforts.

This week will also see the release of US nonfarm payroll and unemployment data. The coronavirus pandemic had rattled the US economy, seeing unemployment increase by record levels. However, throughout 2021, US unemployment has seen a substantial improvement, with US President Joe Biden making the creation of jobs a key priority.

A Bloomberg survey has forecast that there will be 700,000 US jobs growth, with US unemployment falling from 5.8% to 5.6%. The US labour force participation rate, however, is expected to show an unsatisfactory 61.7%.

Although the US jobs market is recovering well, there is a significant way to go before unemployment reaches pre-pandemic levels. For example, the Atlanta Fed Jobs Growth Calculator stated that 740,000 jobs would need to be added per month over the next year for US unemployment rates to resume to pre-pandemic levels of 3.5% and a 63.4% labour force participation rate.

German inflation to surpass ECB target rate

This week will see the release of inflation data for Germany, the largest economy within the Eurozone. German consumer price index (CPI) is expected to surpass the European Central Bank’s (ECB) target rate of 2% and is forecast to rise to 2.3% for June 2021.

Investors have kept a close watch on Eurozone inflation data and the implications of stimulus measures from the ECB. Analysts at ING have stated that the reopening of Eurozone economies has placed pressure on goods and services, pushing prices higher.

Eurozone policymakers have desperately attempted to show that they will not act hastily regarding inflation spikes which they view as temporary or driven by oil prices.

The ECB’s lack of action means there will be little change to bond yields until at least September 2021, when policymakers are set to review asset purchases.

The Canadian dollar (CAD) reaches a six-day low against the US dollar (USD)

The Canadian dollar (CAD) has reached a six-day low against the US dollar (USD), primarily due to falling oil prices, one of Canada’s biggest exports. Oil prices have reduced by 1.5% due to a rise of coronavirus cases across Asia. However, IHS Markit has predicted that oil production output will gradually return to pre-pandemic levels following a challenging year.

During the start of today’s trading session, the US dollar to Canadian dollar (USD/CAD) exchange rate was 0.3% lower at CAD 1.2333. The Canadian dollar (CAD) and US Dollar (USD) are likely to be further impacted this week by the release of Canadian gross domestic product (GDP) for April 2021 and US unemployment data.

Thai Baht (THB) declines as Singapore stock fall

South-East Asia is currently experiencing a rapid rise of coronavirus cases, which has impacted both the Thai baht (THB) and Singapore stocks.

The Thai baht (THB) hit a 13-month low during today’s trading session as Thailand’s economy continues to suffer from a lack of tourism. As a result, the Thai Central Bank is considering adjusting the regulatory framework to allow the Thai economy to manage market volatility better. The Bank also stated that they expect Thailand’s economy to return to pre-pandemic levels during Q1 of 2023, a considerable delay in recovery from the UK and US.

Singapore stocks have today fallen to their lowest level since 17th May 2021. A new wave of coronavirus infections is dulling investor sentiment across South East Asia. Countries such as Indonesia are said to be tightening restrictions this week to help curb the spread of further coronavirus infections.