GBP could receive a boost from BoE comments this week
Pound Sterling (GBP) is on course to recover losses against the euro (EUR) and US dollar (USD), having slipped against its major currency competitors during the previous trading week.
Whilst the British pound (GBP) took a tumble across the board, Sterling could be supported by comments from the Bank of England (BoE) and European Central Bank (ECB) this week.
BoE Governor, Andrew Bailey, due to speak Monday morning regarding improving the UK’s economic outlook, which should provide a further boost to the British pound (GBP). Out of all major economies, the UK is predicted to be one of the fastest-growing by economists as a result of government spending, as it’s thought that Mr Bailey will reconfirm this stance.
Fabrice Montagné, economist at Barclays says “the monetary policy committee will likely re-establish its structural upwards bias and entertain upwards-sloping rate expectations”.
The ECB will meet this Thursday as EU countries continue their struggle in keeping up with coronavirus vaccinations, significantly lagging behind the UK and US. There are not expected to be any EU policy changes this week, as it’s anticipated that they will reaffirm their stance to keep borrowing costs low.
Andrew Kenningham, economist at Capital Economics stated “with no prospect of any change to its policy settings, the focus will be on the bank’s efforts to explain how and when it would step up bond purchases in response to rising bond yields.”
Release of EU data will also be of concern to investors this week, particularly Germany’s industrial production data, the largest economy in the Eurozone.
At the time of writing, the British pound to euro (GBP/EUR) exchange rate continues to trade around the EUR 1.17 level.
UK ports unprepared for post brexit customs checks
A number of British ports have claimed they are not prepared for the next set of post-Brexit import controls, set to commence in July. The deadline for the new customs checks has already been delayed to give ports a chance to prepare, yet it seems that more time could be needed.
Brexit Minister, Lord Frost, is already said to be in the process of reviewing customs checks in a bid to make the rules less stringent, as ports urge ministers for a deadline extension.
Richard Ballantyne, chief executive of the trade body British Ports Association (BPA) noted that whilst it is understandable that not all facilities will be ready in time, the industry merely wants to know what alternative measures are in place.
Port operators have attributed the lack of preparation to reduced funding from the UK government. Portsmouth, for example, had applied for GBP 32 million worth of funding, only to have received GBP 17 million. This decision meant they had to abandon plans for a live animal inspection post, impacting cattle and horse breeding businesses.
Mike Sellers, the director of Portsmouth International Port, highlighted that around 9,000 racehorses enter the port each year as well as 60,000 other animals for breeding purposes. The lack of facilities will mean that UK farmers will not be able to export high-value breeding material to the EU.
Traders eagerly await for the outcome of a ‘review of the timetable’ ordered by Lord Frost, which was confirmed over the weekend.
US dollar gains expected to be limited
Upwards momentum in the US dollar (USD) is expected to ease in the long term, economists say. The British pound (GBP) dipped against the Greenback towards the end of the previous trading week, with the British pound to US dollar (GBP/USD) exchange rate currently standing at USD 1.38.
It has been identified that the US dollar (USD) tends to weaken following the rise of long-term yields, whilst receiving a short-term boost, as is the case currently. Mark Haefele, Chief Investment Officer Global Wealth Management at UBS AG says, “currencies move in cycles, and political, economic, and historical trends point to further medium-term USD weakness.”
Underlying sentiment towards the US dollar (USD) remains bearish due to the “lower for longer” stance reiterated by the Federal Reserve, as Fed Chair, Jerome Powell maintained his dovish attitude during last week’s interview with the Wall Street Journal.
The US dollar (USD) was supported last week following the biggest monthly jump of non-farm payroll data, which revealed 370,000 jobs had been added in February. The growth significantly beat estimates of 210,000, though around 4 million Americans have been out of work at least 27 weeks.
The progress of President Joe Biden’s USD 1.0 trillion coronavirus stimulus bill continues to be a main point of focus, as the House of Representatives are set to vote on the revised Senate version of the bill.