GDP figures from the Office for National Statistics showing the UK economy contracted in Q1 weren’t the only thing weighing on the pound on Wednesday morning. The UK currency was also pushed lower in early trading by the latest developments in the “sausage war” as markets wait to learn if Britain and the EU can agree to extend an exemption on customs checks on British-made chilled meat shipments to Northern Ireland – with the current grace period waiving customs checks due to end on Wednesday. Prime Minister Boris Johnson said on Tuesday that he believes both parties will reach an agreement on extending the exemption soon. While volatility has been limited, investors will always monitor progress on trade tension between Britain and the EU.
Outgoing Bank of England (BoE) Chief Economist Andy Haldane said inflation is likely to finish the year near 4% – double the central bank’s target and over the 3% the BoE estimated a few days ago – presenting the biggest challenge to policymakers since the pound plummeted in 1992.
Making his last speech as a BoE official, Mr Haldane urged his fellow Monetary Policy Committee members to shift their attention from stimulating the economy to controlling the pace of price increases. Speaking on Wednesday, he said: “This would leave monetary policy needing to play catch-up to re-anchor inflation expectations through materially larger and/or faster interest rate rises than are currently expected,” adding “If this risk were to be realised, everyone would lose: central banks with missed mandates needing to execute an economic hand-brake turn, businesses and households facing a higher cost of borrowing and living, and governments facing rising debt-servicing costs.”
Dollar maintains momentum
The dollar remained on course yesterday for its biggest monthly rise since March, supported by investors’ apprehension ahead of much-anticipated US labour data on Friday and mounting concern about the spread of the Delta coronavirus variant – which combined to generate demand for the safe-haven currency. The dollar had already made considerable gains in June, predominantly triggered by a surprisingly hawkish shift in the Federal Reserve’s interest rates outlook.
The ADP National Employment Change Report for June – a measure of the change in the number of employed people in the US – showed private payrolls rose by 692,000 jobs last month, exceeding the rise of 600,000 jobs forecast by economists. Data for May was revised lower to show 886,000 jobs were added instead of the originally reported 978,000.
By this morning, the pound vs dollar rate was floating just above the 1.38 benchmark.
The UK Markit Manufacturing PMI for June is slated for release this morning. Meanwhile, a busier day in the US calendar sees a raft of economic indicators hit the headlines, including: Initial Jobless Claims, Markit Manufacturing PMI, and the ISM Manufacturing PMI.