24/08/2021 -WEEKLY MARKET REPORT



Economy concerns continue


  • GBP started Monday with limited gains against EUR & USD after signs that the UK’s economic rebound slowed in August. The Flash PMI reading showed a greater-than-expected slowdown with the Services PMI reading at 55.5 vs expectation of 59.0 (compared to 59.6 in July). Whilst a reading above 50 still represents growth, the slowdown initially limited Sterling’s gains before GBP continued to climb mid-afternoon due to increased risk-on sentiment in global markets. Manufacturing PMI beat expectations of 59.5, coming in at 60.1 for August vs 60.4 previously – however, concerns remain as a shortage of raw materials and available workforce could cause issues in the months ahead. Additionally, business leaders in the hospitality sector continue to call on the government to clarify the requirements for Covid passports when attending venues, as new bookings have begun to nosedive for Autumn due to the uncertainty.


  • EUR experienced modest gains vs USD, as markets eye events later this week: The ECB’s De Guindos speaks tomorrow, with the ECB Monetary Policy Meeting Accounts released on Thursday. Traders are likely to be looking to see if there is evidence of a continued divergence between the ECB and US Federal Reserve policy, with further talk of the ECB holding off medium and long-term interest rate hikes likely to cause volatility ahead of the Jackson Hole Symposium in the US on Friday. As stated, the main focus is on the potentially significant gap between when the US starts hiking interest rates, and when the EU then follows suit. The EU area August PMIs showed that business activity continued to grow, albeit the rate of expansion slowed slightly. The report referenced further reopening of the economy as one of the main drivers, as the services sector outperformed manufacturing for the first time since the pandemic began.


  • USD was relatively flat in the morning session yesterday as traders are eying events in the EU (stated above) before full attention turns to Friday with the Jackson Hole Symposium and Fed Chair Powell’s speech. So far there has been no official guidance on what Powell will say and speculation is building that he may hint at when America’s stimulus will end. A number of banks are now starting to forecast four US interest rate hikes before the end of 2023, and any further clues from Powell could see USD strengthen. This may not disappoint Europe, as Dollar strength vs the Euro could help to stimulate EU inflation towards the ECB’s 2% target. The Dollar ended the day weaker against the Euro and Sterling, as gains in major stock markets signalled a return of confidence amongst global investors.



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