Ellie Allen

Pound Pays the Penalty as UK Gov Scores an Own Goal

6 min read


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Pound/US Dollar (GBP/USD) falls to $1.38

Pound/Euro (GBP/EUR) fluctuates around €1.16

Pound/Australian Dollar (GBP/AUD) slips to AU$1.83

The Pound was on a rollercoaster ride throughout June, tumbling around 3 percent against the US Dollar. The UK government appeared confident about ‘irreversibly’ lifting lockdown restrictions on July 19, however, controversy surrounding the former health secretary, Matt Hancock, limited Sterling after it was revealed he had broken his own social distancing guidelines. Former chancellor Sajid Javid was brought in to replace Hancock as the new health secretary and was immediately bullish in his outlook about reopening the economy. Javid said he saw “no reason to go beyond 19 July” and promised to end lockdown restrictions “as soon as possible”, despite rising coronavirus case numbers throughout England.

Political flux aside, June saw GBP-supportive economic data, with the final UK May construction PMI beating forecasts at 64.2 and the flash manufacturing and services PMIs for June providing further evidence of growth in the British economy. Duncan Brock, the group director at CIPS, commented on last month’s PMI data, saying: “The month of June offered abundance in terms of rapid growth and new orders along with the highest levels of job creation since 1998 in private sector business. The lockdown lid was lifted on depressed sales and marketplaces buzzed with activity and optimism.”

Nevertheless, the Bank of England (BoE) struck a cautious tone when it met to decide interest rates, with Governor Andrew Bailey saying that he saw the nation’s steadily rising inflation figures as being transitory. The Bank kept the benchmark lending rate at 0.1 percent, limiting the Pound’s gains towards the end of the month.


Last month saw the release of the latest UK retail sales report, which soared to its highest levels since the beginning of the coronavirus crisis. Bricks and mortar clothes shop sales more than doubled, while online sales fell back to 39 percent in May following the easing of lockdown restrictions. Helen Dickinson, chief executive of the BRC, commented on the statistics, saying: “Retail sales were buoyant in May thanks to the reopening of hospitality, coupled with the afterglow of non-essential retail’s own return. Pent-up demand for the in-store shopping experience, as well as the first signs of summer weather, helped retail to the strongest sales growth of the pandemic.” But with lockdown restrictions due to be lifted, Pound investors became more confident about the outlook for the British retail sector throughout July and beyond.

Nevertheless, Boris Johnson gave out mixed signals about the lifting of lockdown restrictions in July saying that some ‘extra precautions’ may have to stay in place due to rising Covid-19 case numbers. On the whole, Johnson appeared confident that the final lifting of restrictions would go ahead in July, saying that England was “set fair” to ending lockdown measures as hospitalisations and deaths from the virus remained relatively low throughout June.


The US Dollar put in a mixed performance throughout June as a mixture of rising concerns over the so-called delta variant of the coronavirus. As this new variant spread throughout the UK, Europe, and across Asia, demand for the safe-haven USD began to creep higher. In fact, the ‘Greenback’ hit a two-month high against major currencies, but soon dipped as markets appeared to shrug off earlier concerns. Instead, confidence in the effectiveness of the various vaccines outweighed the perception of risk, buoying sentiment and limiting the appeal of the US Dollar.

More cautious-sounding comments from the Federal Reserve Chair, Jerome Powell, also limited the USD/GBP and USD/EUR exchange rates last month. The US economy, Powell said, would not recover until “well into the future”, while also highlighting the high levels of unemployment throughout America. Levels of inflation, Powell said, would also ‘wane’.

In US economic data, last month saw the publication of the latest ISM manufacturing PMI for May, which rose to a stronger-than-expected 61.2 from April’s 60.7, while a key measure of unemployment also improved, falling from 6.1 percent in the previous month to 5.8 percent. Flash US PMI composite data for June also indicated a recovery in the world’s largest economy and the latest ADP employment change data also beat forecasts by falling from 886 thousand to 692 thousand, providing a glimmer of hope for a way out of America’s unemployment crisis in the months ahead.


The Euro benefited from the European Union’s stepped-up vaccination efforts throughout June and was further bolstered by generally positive Eurozone economic data. Figures from May saw the Eurozone’s largest economy, Germany, show more signs of recovery, with the latest PMI figure rising to 64.4. But a slowing down in the bloc’s retail sales numbers and factory orders sparked some concern about key sectors going forward. With the Eurozone economy largely forecast to recover later this year, however, moderate underperformance in economic data failed to hold back the single currency. Germany’s consumer confidence, for instance, is largely expected to soar in July.

Rolf Bürkl, GfK consumer expert, said that Germany’s shedding of its lockdown restrictions as well as “significant advances in vaccination” has ensured “increasing optimism, which is also expressed in better consumer sentiment”. As a result, the Euro rose against the Pound and US Dollar last month, thanks to growing confidence in the outlook for the Eurozone’s economy. The preliminary Eurozone PMI data also revealed a strong performance in May, with Chris Williamson, the chief business economist at IHS Markit, predicting a “significant expansion” for the GDP in both the second and third quarters this year. Consequently, rising market mood in the Eurozone saw the single currency begin to creep higher against some of its peers last month.


The Australian Dollar fluctuated on mixed global market mood last month, primarily on delta variant fears. Added to this, new outbreaks throughout Australia, including Sydney and the state of Victoria, weighed on confidence in Australia’s ability to recover its domestic economy later this year. Treasurer Josh Frydenberg also lowered the long term economic growth forecasts, saying: “The economy will be smaller and Australia’s population will be older than it otherwise would have been, with flow-on implications for our economic and fiscal outcomes.”

In Australian economic data, last month’s GDP figures for the first quarter beat forecasts and rose by 1.8 percent. The latest trade balance data for April also rose to AU$8,028 million, buoying confidence in the outlook for the Australian economy. However, underwhelming Chinese PMI data dented demand for the ‘Aussie’. China is Australia’s largest trading partner, so if the world’s second largest economy shows any signs of slowing down, this can translate badly for the Australian Dollar.


Pound investors will be keeping a close eye on the new UK Health Secretary, Sajid Javid, this month. Any indications that he will be going ahead with the final and irreversible lifting of England’s lockdown restrictions on July 19 would likely see Sterling head higher on markets. Conversely, if Downing Street announces lasting restrictions beyond that date, then we could see confidence in the UK economy tumble once more. Focus will also be on BoE Governor Andrew Bailey this month, with any dovish comments about the outlook for UK economic growth likely being GBP-negative. June’s PMI data will also provide some insights into the performance of the British economy last month. Could positive data see GBP exchange rates head higher?

US Dollar investors will monitor US economic data throughout July, with the latest unemployment figures and inflation statistics potentially providing further ammunition for the Federal Reserve to maintain its wait-and-see approach. If so, then we could see the ‘Greenback’ fall, especially if risk-sentiment carries on improving as global hospitalisations and death rates from Covid-19 continue to fall.

We could see the Euro continue to head higher in July if the outlook for the Eurozone’s economy remains strong. The first week of July will see the release of the latest ZEW survey of economic sentiment. Could an uptick in the Eurozone’s economic morale take the single currency higher? Eurozone retail sales data for May are also expected to rise by 4.1 percent month-on-month, while the European Commission’s release of its economic growth forecasts could provide further evidence that the bloc’s economy is on the road to recovery.

The Australian Dollar will remain sensitive to global risk sentiment for the remainder of July. If Covid-19 infection rates continue to soar throughout Asia and in Australia, however, then we could see the ‘Aussie’ struggle on the markets. But more signs of large economies like the Eurozone, US and China beginning to recover would push-up demand for the risk-sensitive currency. The latest Reserve Bank of Australia’s (RBA) interest rate decision will also be in focus. The bank is largely expected to hold interest rates at a record-low of 0.1 percent, but downbeat comments from the RBA’s Governor, Philip Lowe, could drag down the ‘Aussie’ even further.

Final thoughts

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