The pound’s performance in the week ahead will be determined by yesterday's news that Covid restrictions will not be relaxed further until 19th of July. On Tuesday, Wednesday and Friday, investors will focus on the releases of a series of market data, including employment data, inflation figures and UK retails sales numbers, respectively. With investors being interested to see how well the UK economy is recovering, and how the Bank of England will eventually respond by raising interest rates, any sign of strong data will be pound positive.
On Monday, markets reacted to the news that the UK government will not fully relax Covid restrictions on 21st June as planned due to the rise of Covid-19 infections over the past week. British Prime Minister Boris Johnson may also announce further government support for businesses, as junior health minister Edward Argar said on Monday.
Foreign exchange markets had already priced in a possible delay, so the news has not provided any immediate volatility.
However, if the Indian variant of the coronavirus pushes infections and hospitalisations up and the vaccines do not prevent a rise in cases . hospitalisations and deaths, then the pound may be vulnerable to volatility down the line. Foreign Secretary Dominic Raab had said on Sunday that the government’s decision on ending Covid restrictions on 21st of June would depend on whether there was no link whatsoever between infections and hospital admissions - so the change suggests that this is the case.
The coming week will also see a number of important economic data releases, which if they come out strong, then this could prompt the BoE's Monetary Policy Committee to start thinking of terminating its quantitative easing programme before raising interest rates in 2022. This scenario will support the pound.
On Tuesday, with the release of employment data, investors will be looking to see whether 50K jobs in the three months to April have been added to the economy. The unemployment rate is forecast to come in at 4.7%, down from 4.8% previously. If numbers are better, then the pound will find further support, while any move lower could impact on the pound in the near-term.
On Wednesday, May inflation numbers are expected to show an increase of 1.8% year-on-year, up from 1.5% previously. This is almost the mid-point of the Bank’s 1%-3% target range. This will be positive for the pound.
UK retail sales
On Friday, UK retail sales figures could be up, with a reading of 36.8% growth year-on-year in May, which could boost consumer confidence.
The data predictions are generally optimistic and any digression from the numbers could hurt the pound and disappoint the markets.
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