FTSE 100 struggles to gain despite UK lockdown easing

• Pound Sterling (GBP) rallies amid UK lockdown easing optimism
• US dollar (USD) weighed down by abysmal payroll data
• FTSE 100 struggles to gain momentum despite Boris election success and UK house price growth
• UK airline stocks tumble amid “green” list disappointment

Pound Sterling (GBP) is rallying on the first day of the new trading week, supported by UK COVID reopening optimism, solid economic data and the favourable outcome of the Scottish elections, with another independence referendum no longer seen as a threat.

Chief Economist Jermey Thomson-Cook described the election result as a positive for the British pound (GBP) by allowing UK Prime Minister Boris Johnson to continue rejecting calls for another independence vote.

The British pound (GBP) is also benefiting from US dollar (USD) weakness on Monday, which fell out of favour with investors after a cyber attack forced a significant oil pipeline from Texas to New York to shut down.

On Saturday, the US Department of Energy said it has been monitoring the situation and the potential impact the shutdown may have caused to the country’s energy supplies. Still, traders appear to be shaken up nonetheless.

At the time of writing, the British pound to US dollar (GBP/USD) exchange rate has surged by 0.7% to USD 1.4144 – some of its best levels since February.

Pound Sterling (GBP) is also trading higher against the euro (EUR) and other major currency rivals such as the Australian dollar (AUD), Canadian dollar (CAD) and South African rand (ZAR).

The British pound to euro (GBP/EUR) currency pair has advanced by more than 1% on Monday and is currently trading at EUR 1.1623, after being stuck at the EUR 1.15 level for weeks.

Although Scotland’s First Minister, Nicola Sturgeon, has vowed to press ahead with plans for another independence referendum when the COVID-19 situation in the country settles, GBP traders appear relatively unphased by her remarks.

Furthermore, with the Bank of England (BoE) preparing to taper its massive QE programme, the next phase of UK lockdown easing going ahead as planned, and the economy gaining momentum, the outlook for GBP remains positive.

Will Bank of England tapering support GBP gains?

Although GBP had a muted reaction to BoE tapering, as political risks are fading and the whole economic picture remains rosy, a tightening of policy could drive GBP higher in the medium-term.

BoE policymakers also believe that the UK economy could grow at its fastest rate since WWII, anticipating 7.25% growth in 2021 – up from earlier forecasts of 5%.

ING analysts have said the central bank’s hawkish outlook for the UK has boosted confidence in the British economy and, in turn, pound Sterling (GBP) which has made bullish gains in the soft USD environment.

The UK currency also benefits from confirmation that UK Prime Minister Boris Johnson has approved plans to ease the next round of COVID lockdown restrictions.

According to Mr Johnson, from May 17th, Britons will be allowed to:

• Holiday abroad under the Global Travel Taskforce’s (GTT) new traffic light system
• Meet indoors under the rule of six or as two households
• Meet in groups of up to 30 outdoors
• Dine and drink indoors at cafes, restaurants, bars and pubs
• Visit museums, cinemas, theatres and other indoor entertainment venues

The news has already seen GBP/EUR and GBP/USD get off to a solid start this week. Wednesday’s release of UK gross domestic product (GDP) data could offer further support if the figures confirm that Britain experienced a smaller-than-expected contraction in Q2 2021.

Also influencing GBP exchange rates today are the latest Halifax house price figures for April, which beat forecasts and grew by 1.4% – the fastest pace in five years.

Although the EU’s Sentix Investor Confidence index improved from 13.1 to 21 in May, concerns over new mutant strains of the virus and that the bloc could struggle to emerge from its double-dip recession has limited any upside potential in the euro (EUR).

However, fears over COVID-19 variations have also caused London’s FTSE 100 Index to struggle on Monday, despite COVID lockdown easing optimism and a surge in Britain’s mining shares.

FTSE 100 struggling despite local election success and reopening plans

The FTSE 100 has struggled to gain momentum today despite plans to press ahead with reopening the UK economy and Scottish election success.

After a relatively strong start to the day, London’s FTSE 100 Index has closed 0.061% lower or by -4.35 points to 7,125.36 on Monday, with airline shares among the top losers.

Airline shares tumbled following the UK government’s “green” list announcement, which left a lot to be desired given that only 12 countries are featured.

Matters were made worse after investors realised that only four of the twelve countries on the list would not force British holidaymakers to quarantine upon arrival.

With hopes over a robust recovery dampened by government policy, airlines were left trading on the back foot yet again.

Many airlines have ramped up flights to holiday hotspot Portugal – one of the few European countries to feature on the green list with quarantine-free travel.

That said, Transport Secretary Grant Shapps said that the traffic light system would be reviewed every three weeks, meaning that the UK government could add other holiday destinations to the green list as early as June 3rd.

Pound Sterling (GBP) has avoided losses stemming from mixed travel news due to Britain’s improving domestic situation and accelerating vaccine rollout, as more than two-thirds of the adult population have now received their first COVID jab.

Pound Sterling goes higher across the board

The British pound (GBP) has reclaimed recent losses against a host of major currencies on Monday, with favourable price action in GBP triggered by the local election result and a softening in the US and Canadian dollars.

The Canadian dollar (CAD) has been a top performer in foreign exchange (FX) markets recently, supported by solid economic data, rising oil prices and its correlation to the US economy, which has impressed investors as of late.

Last week, some surprising employment data for April saw the “Loonie” fall out of favour with some investors, which has offered some support to the British pound to Canadian dollar (GBP/CAD) exchange rate.

At the time of writing, GBP/CAD is trading 0.5% higher at CAD 1.7093 and could extend gains in the week ahead if investors find further fault with Canada’s economy or UK GDP data impresses.

Confidence in the UK economy has also supported the British pound to Australian dollar (GBP/AUD) exchange rate, which is trading 0.5% higher on Monday at AUD 1.7962.

Success under Boris Johnson’s leadership has proven to be a game-changer for his popularity, pound Sterling (GBP) and financial markets as confidence in the UK economy continues to grow under his reign.

While the outlook for the Australian economy is equally optimistic, China’s move to “indefinitely suspend” its trade accord with Australia is beginning to dampen the country’s recovery prospects and cause headwinds for AUD.

As China is Australia’s largest trading partner, any signs of tensions between the two nations escalating reduce the “Aussie” dollar’s appeal.

The Australian currency has also been unable to capitalise on US dollar (USD) weakness today, as has the South African rand (ZAR), which has tumbled by 0.5% against GBP.

At the time of writing, the British pound to South African rand (GBP/ZAR) cross is trading at ZAR 19.8329 and could continue to climb on the back of UK COVID reopening optimism.

Tomorrow, ZAR traders will be looking out for South African manufacturing production data, which could offer the South African rand (ZAR) a boost if the figures fall in line with consensus expectations.

GBP traders will be focusing on the slew of economic data out of the UK on Wednesday, including GDP figures, manufacturing and industrial production publications.