The GBPEUR exchange rate was 0.25% lower on Thursday after SAGE said the June reopening could be delayed and markets reacted to the inflation story. Scientists have suggested that the June move could be delayed but will focus on the data. The US saw a strong surge in inflation, and this raises fears for the UK’s own reopening.
GBPEUR is trading at 1.1617 as the early week gains begin to fade.
June reopening at risk
Scientists at the SAGE group have sounded a warning that the June reopening could be delayed in the UK.
Foreign Office minister James Cleverly spoke to Sky News and was guarded about the India variant fears, which could slow the 21st of June reopening.
“Scientists on Sage will make their assessments, they will report that to government, and we will make decisions based on the data and the evidence that they provide,” Cleverly said.
“The Prime Minister, the Health Secretary, have always been clear that the easing of restrictions which allow us to get back to normality will be done at a pace and in a way which is safe,” he added.
Last week saw scientists admit that there would be no new third wave in the country after months of doom-mongering, but the goalposts are being moved again over the so-called India variant.
The Indian variant is now said to be the dominant strain in the majority of UK areas which are seeing the biggest increase in cases over the last week. Again, this brings into question why the government still allow hordes of passengers to fly into the country carrying these variants.
The pound to euro was soaring this week and looked to be heading back to the highs of early-April at 1.18. That could be at risk if the reopening slows in the coming weeks.
Markets rocked by inflation again
The US stock market was 2% lower on Wednesday, and this dragged other indices down this morning as traders react to a continued surge in inflation. Central banks have tried to claim that the inflation picture is “transitory,” but the data says otherwise.
US consumer prices surged to their largest monthly increase in almost 40 years. The CPI reading was 0.8% month-to-month in April, while the yearly gains were 4.2%. That was the fastest increase since September 2008 and is much higher than the Fed’s 2% goal.
The data puts the central banks’ monetary policy goals at risk and for the pound to euro, it is likely that the UK would see inflation rising first due to the faster reopening. Germany saw inflation at 2%, but other economies in the eurozone may be sluggish. The rise in prices brings risk of stagflation and central banks having to buy more bonds to curtail bond yields. These are themes that have been discussed in this blog for weeks, but the market is only now catching up to the inflation theme.