Foreign exchange experts Moneycorp say the recovery continues on the currency markets.
Sterling climbed after the UK elections, outperforming its closest rivals, the US dollar and the euro. As markets have responded to a combination of election results, the easing of lockdown restrictions and the continuation of vaccine rollout success, investors have welcomed the further alleviation of imminent risk. As a result, the pound gained confidence, climbing close to 1.41 against the US dollar – the highest since February – and almost 1.16 against the euro on Monday.
With the UK economy set to reopen further in just a week’s time, hopes are high for additional economic progress in the coming months. The UK economic data was constructive or neutral, with no significant verbal interventions by the government or the Bank of England. Overall sterling was the top performer among the major currencies, with an average gain of 1.2% and no losses. Compared with a month ago the pound is an average of 0.9% firmer, beaten only by the Canadian dollar.
The strongest UK data came from residential property. The Halifax house price index went up by 1.4% in April, putting the average price at £258k, a record high. Prices are 8.2% higher on the year. The RICS UK house price balance jumped to +75%, its highest level in more than 40 years as demand far outstripped supply. A stack of UK ecostats on Wednesday morning came in mostly better than expected. The trade deficit for March was smaller than anticipated. Industrial and manufacturing production were well ahead of forecast. The decline in first quarter gross domestic production was revised from -1.6% to -1.5%.
EUR
There was almost nothing in contrast from Europe to influence buyers or sellers of the euro. Figures from the EU showed Italian industrial production increased by an annual, and rather Covid distorted, -37.7% in March. However, ZEW’s surveys of economic sentiment – investor confidence – revealed improvements in Germany and the Eurozone.
But while data from Britain and the USA arrived by the bucket-load, the numbers from Europe were more of a trickle. The 10.9% annual increase in industrial production lost impact in the same way as almost all comparisons between the first lockdown and the recent economic reopening. The same was true of the European Commission’s updated economic forecast: it came as no surprise to see “a significant upgrade of the growth outlook”, for all the obvious reasons.
Perhaps the biggest driver of the euro was the changing fortunes of the US dollar, which ended last week badly and recovered somewhat this Wednesday. The euro came out of that contest best, but only to the tune of a fifth of a US cent. Overall it strengthened by an average of 0.4%, losing almost a cent to the class-leader, sterling.
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