Sterling managed to recover its losses against the Euro going into the end of July and managed to recover to 1.39 against the Dollar. We saw the Dollar Index strengthen through July which managed to take away momentum from most assets over the last 30 days, but since the Fed has now stated they will wait to see a stronger job market before they decide to taper QE, it left Sterling with some room to run.
With Sterling, we should be cautiously optimistic at the moment- the UK has lifted all restrictions, vaccinations are going well, but we are still seeing a pretty high amount of cases (Albeit they have fallen slightly over the last week)- the hospitalization data seems to be up, and there are questions on how the Government plans to counteract this. We are seeing a similar story in the U.S where mask mandates have been put back into place as there are fears about the Delta variant- which does make me question the timeline for economic recovery at this point.
Amidst the concerns over new variants of Covid- The main issues lie with Central Banks- right now it seems the Fed is preparing to taper- with the view to put interest rates back up over the next year- The ECB seems pretty dovish for now (With a negative interest rate)- so all hopes really now lie with the Bank of England.
This Thursday, the Bank of England decision should give us forward guidance and new economic forecasts to work with- with the focus around when QE can be tapered, expectations on GDP, and when interest rates will go up- there should be no major shift in tone from the BoE- I expect them to proceed with caution with the news of more Covid cases in the UK- providing there are no further restrictions introduced this year- then the BoE can work on achieving its targets. The other concern is that the furlough scheme ends in September, and though the numbers on furlough have fallen, there is still a large number of people who are still on the scheme, which may cause some issues with the employment rate come October- which is something we should all be aware of.
Other economic figures of interest are European, UK, and U.S manufacturing on Monday, The RBA interest rate decision on Tuesday, European and UK PMI’s on Wednesday, and of course, NFP on Friday which could be an explosive event.