Big Week For GBP = Big Losses?

10 and one 10 us dollar bill

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The U.S. dollar traded higher against most of the major currencies on Tuesday despite weaker new home sales and cautious comments from Federal Reserve Chairman Powell. Along with his peers, Powell made it clear that they see only a temporary rise in inflationary pressures. Treasury Secretary Janet Yellen avoided market-moving comments in their closely watched testimony. For the next 24 hours the focus shifts to Europe where PMI reports are scheduled for release.

This is a busy week for the British pound. Today’s labor market report will be followed by inflation and PMI numbers on Wednesday and retail sales on Friday. Despite fewer than expected job losses at the end of the year and a lower unemployment rate, GBP/USD sold off for the fourth day in a row. So far the U.K. has vaccinated more than 50% of its adult population and as a result of this aggressive effort, yesterday’s death rate was the lowest since September 2020. Their success will pay dividends quickly but for now, investors are worried about vaccine supply from India slowing, tensions between the EU and UK on vaccine exports, the central bank’s dovishness, and the prospect of a summer-long travel ban. On Thursday, Parliament will vote on the country’s new “Roadmap Regulations” that will include a GBP5,000 penalty for vacations abroad.

Data was better but still not great. For the first time since the pandemic, the U.K. unemployment rate declined but with 147K job losses at the end of the year, joblessness is still near a 5 year high. UK inflation and PMI numbers are due for release tomorrow. Faster consumer and producer price growth is expected as commodity prices increased sharply last month and the February PMIs showed rapid manufacturing and service sector price rises. Smooth vaccine rollout should also promote stronger manufacturing and service sector PMIs. All of this is positive for sterling but will it be enough to renew the currency’s rise?

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