CAPITALDIGEST, MARKET REVIEW 12 JULY 2021

MONDAY 5/7/2021 – STERLING EDGES UP AS PM LOOKS TO END ENGLAND’S COVID-19 RESTRICTIONS Sterling nudged higher on Monday with the British government expected to announce it will proceed with plans to fully reopen the economy in England later this month despite a surge in COVID-19 cases. After falling to its lowest level since mid-April at $1.3733 last week, the pound was 0.05% higher against the dollar at $1.3843 by 1455 GMT. Versus the euro, it rose 0.1% to 85.70 pence. British Prime Minister Boris Johnson will set out plans for the final step of easing COVID-19 lockdown in England at 1600 GMT, including guidance on social distancing, face coverings and working from home. Data suggests that cases will continue to rise as restrictions are eased, the government said, but the link to hospitalisations and deaths has been weakened by the vaccination programme. The final step of lockdown easing was delayed by four weeks last month to enable more people to be vaccinated as the now-dominant Delta variant of the coronavirus drives a rise in COVID-19 cases. “The pound has strengthened a little today, albeit within familiar levels. The UK government could announce today that almost all restrictions will be lifted on July 19, which could put GBP bulls in a better mood this week,” said Jane Foley Head of FX Strategy at Rabobank.     TUESDAY 6/7/2021 – STERLING SHINES AFTER UK SETS OUT REOPENING PLANS, HITS OVER WEEK’S HIGH VS. DOLLAR Sterling hit over a week’s high against the dollar on Tuesday and a 12-day high against the euro, with analysts pointing to recent dollar consolidation and Britain’s reopening plans for July 19 as reasons for the currency’s buoyancy. Against the dollar, sterling reached $1.3798 in early deals in London, its highest since June 28. Against the euro, it hit its highest since June 24, at 85.50 pence. British Prime Minister Boris Johnson set out plans on Monday to end social and economic COVID-19 restrictions in England in two weeks’ time, a test of whether a rapid vaccine rollout offers enough protection from the highly contagious Delta variant. Johnson confirmed the government aimed to end restrictive measures on July 19, with a final decision to be taken next week. He said the step would eliminate formal limits on social contact, the instruction to work from home, and mandates to wear face masks. “GBP is enjoying some outperformance. This may be linked to Prime Minister Boris Johnson’s speech last night about fully reopening the economy and learning to live with Covid-19,” ING strategists said in a note. “Yet this link looks very fragile and even the Bank of England would admit that the final stage of reopening the economy will have little impact on economic activity.” By afternoon trade, a broad move lower in the euro pushed sterling down 0.2% by 1422 GMT, last trading at $1.3818. Against the euro, it last traded flat at 85.66 pence. Sterling has been among the top performing G10 currencies this year on account of Britain’s quick vaccination rollout, which analysts say has led to a quicker reopening of its economy. However, in recent weeks those gains have evaporated as other countries catch up and as the Federal Reserve hinted an earlier than expected end to easy monetary policy, giving the dollar a boost.     WEDNESDAY 7/7/2021 – STERLING STEADIES AROUND $1.38 AFTER ENGLAND SETS REOPENING PLANS Sterling steadied versus the dollar and the euro on Wednesday after hitting a one week high against the greenback and a 12-day high against the single currency this week as Britain set out reopening plans following the COVID-19 pandemic. Sterling was 0.1% higher versus the dollar at $1.3815 by 1320 GMT, after rising on Tuesday to its highest since June 28 at $1.3898. Versus the euro, it was 0.2% higher at 85.50 pence, after jumping to a 12-day high of 85.36 pence in the previous session. Analysts said sterling had found support this week on British Prime Minister Boris Johnson’s plans to end social and economic COVID-19 restrictions in England. “The UK government’s decision to go ahead with a further easing of restrictions on 19 July has endorsed the market’s relatively relaxed stance towards the recent flare-up in COVID-19 cases in the country,” ING analysts wrote in a note to clients. But investors remained cautious as the government also warned that the number of coronavirus cases could climb as measures are relaxed. Britain reported the highest daily number of new COVID-19 cases since Jan. 29 on Tuesday, and the greatest number of deaths within 28 days of a positive test since April 23. The government is hoping that cases will climb without a resulting increase in deaths, as a large part of the population has received a vaccine.     THURSDAY 8/7/2021 – DOLLAR FALLS FROM THREE-MONTH HIGH AS TRADERS UNWIND RISK The dollar fell on Thursday from a three-month high against a basket of peers, with the euro getting a boost as investors unwound bets on risky currencies and as concerns over the spread of COVID variants increased the demand for safe havens. The greenback was weaker against the euro, the Japanese yen and the Swiss franc, which are generally low-interest rate, stable markets that traders short, using the proceeds to buy riskier assets, said Marvin Loh, senior global markets strategist at State Street. But with bond yields rising and equity markets tanking, riskier positions in currency markets were sold off, benefiting the euro, as well as the yen and the franc, which are also considered safe-haven currencies. “When you have this kind of unwind going on, you’ve got strength in those currencies,” said Loh. The euro held on to earlier gains after the European Central Bank set a new inflation target and claimed a role in fighting climate change after a strategy review, with the single currency last up 0.39% against the dollar, at 1.18365. read more The dollar was 0.71% weaker against the yen at 109.825, with the yen having earlier touched 109.535, its strongest since June 11, while the Swiss franc touched 0.9134 versus the greenback, its firmest since June 17. The dollar index , which measures the greenback against six rivals, was down 0.297% at92.493 from Wednesday, when it reached 92.844 for the first time since April 5. (Graphic on World FX rates) The global spread of COVID variants has added to fears that there could be some disappointment in terms of economic growth in the coming months, said Mazen Issa, senior FX strategist at TD Securities.     FRIDAY 9/7/2021 – STERLING EDGES LOWER AFTER GBP DATA BELOW FORECAST Sterling edged lower on Friday after data showed Britain’s post-lockdown economic rebound slowed sharply in May despite a further relaxation of social-distancing rules. Gross domestic product grew by 0.8% from April, the Office for National Statistics said, much weaker than the median forecast of 1.5% in a Reuters poll of economists. After being hurt by a broader shakeout in FX markets that saw riskier currencies fall and safe havens gain on Thursday, sterling had flattened at $1.3786 by 0830 GMT. In earlier London trading, it fell to $1.3756 when the GDP data was released. “Sterling has started the day on the back foot after May’s growth data came in below expectations,” said Francesco Pesole, FX Strategist at ING. “Some cracks in the so-far very positive recovery story in the UK may leave sterling a bit more vulnerable.” Versus the euro, sterling flattened at 85.94 pence, after having its worst day in two months on Thursday as the European Central Bank set a new inflation target, which gave the euro a broad boost. Capping sterling declines, transport secretary Grant Shapps said fully vaccinated UK residents returning from medium-risk amber list countries would from July 19 no longer have to quarantine when they arrive home.