CAPITALDIGEST MARKET REVIEW. 16 AUGUST 2021.

MONDAY 9/8/2021 – STERLING SLIPS AGAINST STRONGER DOLLAR; EURO-STERLING STEADY The pound weakened against the dollar on Monday, though was close to its strongest versus the euro since February 2020, as investors focused on the potential pace of stimulus tapering after the Bank of England meeting and strong U.S. jobs data. In recent weeks, sterling has outperformed as COVID-19 cases have fallen and high vaccination rates allowed the British government to lift most social-distancing rules. The pound strengthened versus the euro for the last three weeks in a row, and on Friday reached 84.7 pence per euro, its strongest since February 2020. But on Monday, the unit opened slightly lower versus the dollar, then crept up during the morning session, before falling as the dollar strengthened later in the day. Currency markets were digesting a strong U.S. jobs report, which prompted investors to bring forward their bets on the Federal Reserve tightening its pandemic-era stimulus and sent the dollar to a four-month high against the euro during Asian trading. At 1515 GMT, the pound was down 0.1% on the day at $1.3855 . Versus the euro, it was down by less than 0.1%, at 84.78 pence per euro. The Bank of England said on Thursday “some modest tightening” of monetary policy over its three-year forecast period was likely to be necessary. “On the one side, we’re seeing the pound showing signs of wanting to outperform because of the shift in BoE policy,” Joel Kruger, a currency strategist at LMAX Exchange said. “At the same time, there is that offsetting theme of the dollar and risk markets and what happens with the Fed.”   TUESDAY 10/8/2021 – STERLING RISES TO NEW 18-MONTH HIGH VS EURO Sterling rose to an 18-month high against the euro on Tuesday as signs of economic recovery and falling COVID-19 rates spur expectations of a far earlier interest rate lift off compared to the euro zone. Against the dollar, the pound hovered near two-week highs, however, after comments on Monday by regional Federal Reserve presidents, Rafael Bostic of the Atlanta Fed and Eric Rosengren from Boston, strengthened bets the U.S. central bank would kick off tapering by year-end or even sooner. Sterling has performed well in recent weeks as a fall in COVID-19 cases has allowed the British government to lift most social-distancing rules, while the Bank of England (BoE) last week flagged how it might gradually rein in stimulus. British consumer spending rose strongly in July, data from Barclaycard showed, up 11.6% on pre-pandemic levels. Spending in shops too increased by 6.4% in July from year-ago levels, the British Retail Consortium said. Germany’s ZEW survey on the other hand showed investor sentiment had deteriorated for the third month straight in August. By 1530 GMT, the pound was at 84.685 pence, flat on the day but close to an earlier 84.5 pence level that was the highest since last February. The pound has strengthened around 0.8% in August so far against the euro, following on from three straight months of gains. The euro is down 1.4% against the dollar and 1.8% against the pound since July 8, when the ECB announced a strategic review committing to boosting inflation.   WEDNESDAY 11/8/2021 – POUND SNAPS 3-DAY LOSING STREAK VS DOLLAR Sterling reversed course and rose on Wednesday after three days of losses against the dollar, which slipped after the release of U.S. inflation data and dovish comments by Fed policymaker Thomas Barkin.Sterling also traded just off 18-month highs against the euro, though moves were limited as traders held off major bets ahead of British GDP growth figures due a day later. The British currency earlier touched two-week lows against the greenback, which has been buoyed in recent days by impressive U.S. jobs data and remarks by Federal Reserve officials about tapering bond buying and, eventually, raising interest rates, sooner than policymakers elsewhere. But the dollar slipped after data showed annual U.S. inflation at a slightly above-forecast 5.4%. After excluding food and energy, price growth slowed to 0.3% versus 0.9% in June read more Its effect was further tempered by the Richmond Fed’s Barkin who told Reuters it may take a few months more of job market recovery to allow the Fed to reduce support for the economy read more The pound is also being supported by the message from the Bank of England, which last week laid out a path to policy tightening. By 1700 GMT it was 0.33% higher at $1.38840, having earlier fallen as low as $1.38040 . “If we get a run of really strong data from the UK over the next month or so, I suppose maybe we could see the market bring forward a little bit more the timing of the first 10 basis points of rate hikes from the BoE,” Stephen Gallo, European Head of FX strategy for BMO Capital Markets, said.   THURSDAY 12/8/2021 – DOLLAR RISES AFTER U.S. PRODUCER PRICES SURGE The U.S. dollar advanced against a basket of currencies on Thursday, after data showed producer prices posted their largest annual increase in more than a decade in the 12 months through July, suggesting inflation pressures remain strong. The dollar index , which measures the greenback against a basket of six rivals, was 0.1% higher at 93.019. U.S. producer prices increased more than expected in July, a Labor Department report showed on Thursday, suggesting inflation could remain high as strong demand fuelled by the recovery continues to hurt supply chains. read more. The producer price index (PPI) for final demand increased 1.0% last month after rising 1.0% in June. In the 12 months through July, the PPI jumped 7.8%, a record high since the measure was introduced just over a decade ago. Separately, data showed the number of Americans filing claims for unemployment benefits fell again last week as the economic recovery from the COVID-19 pandemic continued. Investors remain vigilant for any signs of inflation running too hot since it could potentially spur the Federal Reserve to pull forward its timing on tapering of asset purchases as well as interest rate hikes. “The U.S. dollar held near the top of a tight overnight range as fresh data renewed pressure on the Fed to shift away from low rate policy,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. The greenback has broadly strengthened since mid-June – hitting its highest since April 1 at 93.195 prior to Wednesday’s data – when the U.S. Federal Reserve flagged that it was gearing up for earlier-than-expected rate hikes and amid evidence that the release of pent-up demand in a rebounding economy was fuelling price rises. Thursday’s data helped the greenback shake off some of the weakness from the prior session when data showed U.S. consumer price increases slowed in July, easing concerns the Federal Reserve will imminently signal a scaling back of bond purchases.   FRIDAY 13/8/2021 – DOLLAR SET FOR SECOND WEEKLY GAIN ON FED VIEW The U.S. dollar edged higher on Friday, on track for a second consecutive weekly gain versus its major rivals, as investors weighed the possibility of the Federal Reserve announcing its plans to reduce its stimulus in the coming weeks. Data on Thursday showed U.S. producer prices posted their largest annual increase in more than a decade in the 12 months through July. While the data comes a day after consumer price data that indicated inflation may be peaking, analysts said producer price data helps the case for removing some of the Fed’s stimulus. Against a basket of its rivals, the greenback held firm around the 93 level, near an April high of 93.195 hit last week. It is up 0.2% this week after a 0.8% rise last week. “With producer prices feeding into consumer prices, this suggests that the CPIs may have not hit a ceiling yet, and may have increased again bets on a potential tapering announcement by the Fed in September,” said Charalambos Pissouros, head of research at JFD Group. The Fed will announce a plan to taper its asset purchases in September, according to a solid majority of economists polled by Reuters. Several Fed officials this week came out in support of tapering bond buying in coming months, setting themselves apart from other, more dovish major central banks such as the European Central Bank and the Bank of Japan. The dollar’s strength was also encouraged by a mild bout of risk aversion in currency markets, with the Australian dollar and the Chinese yuan struggling against the greenback.