The economic recovery battle

Hi everyone,

Sterling has been the second best performing major currency in May after an indifferent April. Charts show £-€ is up around 1% in a month & £-$ has gained 2%. A further two important data readings last Friday confirmed a significant economic recovery is underway in the UK. However, it seems the rebound is apparently already locked in to the £'s current value. 

For the first time in months UK PMI forecasts were not easily smashed (apart from manufacturing), but the figures were nonetheless very strong. Factory orders are surging at a record pace, composite hit its highest level since the index began in 1998 and the services sector is reporting near-record growth with huge upturns in demand for hotels and restaurants. Business confidence has hit an all-time high in the UK and then April's retail sales figure doubled the forecast. The data shows consumers spent bucket-loads on mainly clothes and petrol last month, but even with all of this positivity surrounding the UK in just one-day, it wasn't enough to secure even a small uptick of 0.5% on the board. 

The Pound has gained on the US Dollar 3-weeks in a row now which is what we had expected. However it's a slightly different story with GBP v EUR. The Euro has found support in Q2 due to the vaccination programme (mainly) and recent strong economic performance. The latest round of Euro-Zone PMI's showed strong figures from Germany once again and surprisingly France too, who contributed to the lion's share of the upturn. We do go along with the belief that investors have some kind of love affair with the single currency, as £-€ rates continue to struggle to find new ground. But, there is no question the EU's economy is performing strongly even though restrictions have barely been lifted in the main economies (notably France & Germany).

There is very little data from the UK this week, so traders will be looking out for how many new cases of the Indian variant there is and what politicians are saying about the full lifting of restrictions next month. Both the EU & US publish important figures though to make for an eventful week.

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