Ellie Allen

Pound Loses Value as Government Dithers Over Lockdown Measures

7 min read


Opening an account with Currency Solutions is completely free and you’ll be able to make currency transfers anytime at our excellent exchange rates.

Download our full Currency Forecast

The Pound struggled last month after former Health Secretary Matt Hancock announced that the planned easing of lockdown measures in England would be extended by four-weeks from 21 June to 19 July. The PM Boris Johnson said that he was ‘confident’ the delay would last no longer than four weeks. Johnson further defended the delay saying that it would buy the NHS “a few more crucial weeks” to vaccinate the nation. But with rising cases of the Delta variant of Covid-19, GBP investors remained cautious.

June saw the latest UK services PMI get revised upward from 61.8 to 62.9, while the construction PMI also performed strongly, rising to 64.2. Duncan Brock, the group director at the Chartered Institute of Procurement and Supply, commented on the data saying: “As Covid restrictions were in retreat, a sunnier aspect in the sector was maintained last month and service businesses built on recent improvements with the quickest level of growth since 1997.” Business optimism and confidence in the UK’s Covid-19 vaccination programme also contributed to a positive outlook for the nation’s economy.


Despite soaring cases of the Delta Covid-19 variant last month, deaths and hospitalisations from the virus remained low. Economic confidence quickly recovered in the second half of the month with the view that the government would lift lockdown restrictions on July 19. There were some doubts over whether rising numbers could further delay the easing of lockdown measures, and these prevented the Pound from making any significant gains against its peers.

Meanwhile, the preliminary UK manufacturing and services PMI data for June revealed a strong return to growth. Chris Williamson, the chief business economist at IHS Markit, said that businesses were reporting an “ongoing surge in demand” as the economy reopened. Williamson also said, “the second quarter looks to have seen economic growth rebound very sharply from the first quarter’s decline.”

Towards the end of June, however, the Bank of England (BoE) struck a surprisingly dovish tone, sending the Pound lower. While the BoE held interest rates at 0.1 percent as expected, only one in eight members of the Monetary Policy Committee (MPC) – chief economist Andy Haldane – voted for a rate rise. The central bank also commented that it sees the current rise in inflation as largely transitory.


The US Dollar rose in the middle of June, hitting a two-month high against many currencies after the Federal Reserve hinted at a hike in interest rates and an end to emergency bond-buying, all much sooner than expected. The Fed further signalled higher rates in 2023 and the tapering of bond-buying as the threat posed by coronavirus appeared to be fading.

Fed Chair Jerome Powell, talking about the US economy stated “Lift-off is well into the future” warning, ‘We’re very far from maximum employment, for example, it’s a consideration for the future.” Patti Domm, CNBC Markets Editor, commenting on the Fed chair’s statements, said: “It appears to be a material shift in how the Fed sees the risks around inflation. That’s how I read it. It shows the Fed sees upside risks to inflation and that has presumably followed through to the dot plot.”

Risk-on market mood quickly returned, however, as key economies such as the Eurozone and China continued to recover from the Covid-19 crisis caused by lockdown policies. As a result, this limited the appeal of the safe-haven Greenback. Meanwhile, in US economic data, the Michigan consumer sentiment index soared above consensus, rising from 82.9 to 86.4. US durable goods orders were revealed to have risen by 2.3 percent, partly due to rising demand for civilian aircraft. Owing to signs of broad strength in the US economy last month, the Greenback fluctuated on mixed signals from Asia, as China’s economy has shown signs of slowing down, while Covid-19 infection rates climbed higher in several Asian countries.


June saw the Euro begin to head higher thanks to strong economic data. May’s German manufacturing PMI beat forecasts, rising from 64 to 64.4, buoying confidence in the Eurozone’s powerhouse economy, despite the nation’s retail sales and factory orders falling below forecasts in April. German economic sentiment remained robust for June despite dipping below forecasts. But with some analysts saying consumer confidence is set to increase strongly in July, demand for the single currency has continued to rise.

Eurozone industrial production rose in April, rising from 0.4 percent to 0.8 percent, while the latest preliminary PMI composite data for the bloc revealed a stronger-than-expected performance in economic growth. The flash Eurozone PMI composite figure beat forecasts by rising from 57.1 to 59.2. Chris Williamson, chief business economist at IHS Markit, commented on the statistic, saying: ‘The Eurozone economy is booming at a pace not seen for 15 years as businesses report surging demand, with the upturn becoming increasingly broad-based, spreading from manufacturing to encompass more service sectors, especially consumer-facing firms.” As a result, the Euro performed relatively strongly against its peers last month.


The Australian Dollar fluctuated last month as Australia suffered from several new outbreaks of Covid-19 infections, including Sydney. Australian Treasurer Josh Frydenberg said the nation was “entering a new phase of this pandemic, with the more contagious Delta strain”. As a result, AUD investors became more cautious about the outlook for the Australian economy toward the end of June.

In economic news, June saw the Reserve Bank of Australia (RBA) hold interest rates at 0.1 percent – an historic low. The RBA’s Governor said that there would be a “pick-up in inflation and wages growth” but this would be “only gradual and modest”. The surprisingly dovish tone from the RBA limited demand for the Australian Dollar, despite confidence in the nation’s Covid-19 vaccination programme. First quarter GDP data also revealed a better-than-expected up-tick by 1.8 percent. This left many AUD traders more optimistic about the outlook for the second and third quarter.

Tensions between China and the US did, however, limit the appeal of the risk-correlated Aussie. But with Chinese economic data, including the latest industrial profits data growing strongly in May, the outlook for Australia’s largest trading partner improved, thus benefiting the Australian Dollar.


Pound traders will be paying close attention to the UK government’s comments about the lifting of lockdown restrictions on 19 July. Any signs that Downing Street and the new Health Secretary Savid Javid, agree that the easing will be irreversible will likely buoy Sterling, as the outlook for the economy would improve. In UK economic data, meanwhile, the latest services and manufacturing PMIs for July will provide an indication for the direction of the economy. Could rebounding economic data see the Pound head higher against its peers in July? UK GDP data for May will also be in focus. Any indications of a recovering British economy would be Pound-positive.

In the Eurozone, next month will see several key speeches from the European Central Bank’s President, Christine Lagarde. Any upbeat commentary about the outlook for the Eurozone economy would likely drive-up the single currency. Eurozone unemployment and retail sales data will also be in focus. If either of these show the bloc’s return to pre-pandemic levels, then we would likely see the Euro head higher against its peers. Also in focus will be the latest ZEW consumer and economic sentiment gauges for July. Growing confidence in the Eurozone’s economy would be EUR-positive. Additionally, the latest preliminary German composite PMI for July will provide a glimpse of the strength of the Eurozone’s powerhouse economy. Could robust PMI data drive-up the Euro in July?

Risk sentiment will likely be a key driver for the US Dollar next month. Any signs of falling Covid-19 infection rates either in Europe or Asia could weaken demand for the safe-haven Greenback. In US economic data, Thursday 1 July will see the release of the latest ISM manufacturing PMI for June. If the outlook for the US manufacturing sector remains robust, then we could see the US Dollar benefit. However, the Federal Reserve will remain in focus in July, with any dovish comments weighing on confidence in the world’s largest economy. US jobs data will also provide a key indication for monetary policy going forward. As a result, we should expect a volatile month for the US Dollar, as the coronavirus pandemic unfolds, while intensive vaccination efforts continue to be rolled out across Europe, China, and the United States.

Australian Dollar traders will be eyeing the latest Reserve Bank of Australia’s interest rate decision in July. Although the central bank is widely expected to hold interest rates at their current levels – 0.1 percent – any dovish-looking monetary policy about the state of the Australian economy would likely be AUD-negative. In addition, any indications that Covid-19 rates are rising throughout the country would also limit the Aussie. If confidence begins to flag in Australia’s domestic economy, then we could see AUD struggle in July.

Download our full Currency Forecast

Final thoughts

Opening an account with Currency Solutions is completely free and you’ll be able to make currency transfers anytime at our excellent exchange rates.

We appreciate that navigating the currency market can be daunting! So, a dedicated account manager will always be on hand to offer guidance.