Pound Undermined by Fears of Overinflation and Post-Furlough Unemployment

Pound (GBP) Gains Capped by Inflation and Furlough Fears

The Pound (GBP) spiked yesterday on positive Brexit news before relinquishing some of its gains in the afternoon as inflation and furlough fears dragged on Sterling.

The upside in GBP came as the EU granted the UK a three-month extension to the Northern Ireland protocol grace period, easing the Brexit tensions that have hounded the Pound over the last month. Sterling also found support as the UK unveiled plans for its post-Brexit state subsidy system.

However, the Pound’s gains were capped as Andy Haldane, Chief Economist at the Bank of England (BoE), warned of a ‘very nasty surprise’ if inflationary pressures are left unchecked, urging his colleagues to review the central bank’s current monetary policy.

In addition, the Institute of Fiscal Studies raised concerns that as the government’s furlough scheme begins winding down from today the UK could see a surge in redundancies and a steep drop in income.

With the UK’s finalised manufacturing PMI unlikely to surprise investors today, furlough worries could continue to weigh on Sterling as the day progresses.

Euro (EUR) Dips as Delta Variant Cases Rise

The Euro (EUR) dipped in yesterday’s trade, despite Germany’s unemployment figures falling by 38,000, almost double the projected 20,000.

The downside in the single currency came amid rising Delta coronavirus variant cases across Europe, with the French government’s leading scientific adviser warning of a fourth wave. Many fear that increasing cases and calls for travel bans could impact the Eurozone’s tourism sector as it gears up for summer.

Today’s final manufacturing PMIs could bolster the Euro somewhat, with Germany’s production activity increasing from 64.4 to 65.1 last month, beating forecasts of 64.9. But EUR investors will likely be keeping a close eye on coronavirus developments in the bloc.

US Dollar (USD) Firms on Employment Figures

The US Dollar (USD) made modest gains against the majority of its peers yesterday, initially strengthened by a bearish market sentiment.

Wednesday afternoon’s ADP employment change report gave USD further support, as it revealed that 692,000 new workers were hired last month, above expectations of 600,000.

Today could see the US Dollar extend its upside, as the latest initial jobless claims figures are expected to reveal another fall in unemployment. Additionally, the ISM manufacturing PMI is set to show a marginal slowdown in US factory activity, though the forecast figure will still indicate strong growth in the US manufacturing sector.

Canadian Dollar (CAD) Gains on Recovering Oil Prices

The Canadian Dollar (CAD) firmed yesterday, as the oil-sensitive ‘Loonie’ was buoyed by rising WTI crude prices, which once again broke the $74 a barrel mark.

CAD also benefitted from Canada’s GDP results for April, which showed a smaller-than-expected contraction of 0.3%, versus the 0.8% slump which was forecast.

With no notable data coming from Canada today, oil prices are likely to drive most movement in the ‘Loonie’.

Australian Dollar (AUD) Dented by Spread of Delta Variant

The Australian Dollar (AUD) ticked lower in overnight trade, as Australia’s balance of trade figures came in slightly lower than expected, though they still show a widening trade surplus.

The ‘Aussie’ was likely also pressured by rising coronavirus cases across Australia, as more parts of the country come under stricter lockdown measures.

New Zealand Dollar (NZD) Trends Higher on Risk-On Sentiment

The New Zealand Dollar (NZD) made some modest gains overnight, as a more upbeat market mood increased demand for the risk-sensitive ‘Kiwi’.