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Tipping point

The Coronavirus picture is looking precarious in both Europe and the United States, with infections rising and vaccination rates not progressing as quickly as they once were. The German Chancellor Angela Merkel has hinted restrictions for the unvaccinated could be introduced in the next few months if deterioration continues. On Sunday, the UK saw infection rates fall at the fastest pace since February, even though most Coronavirus restrictions have been relaxed.

Despite this somewhat mixed picture, the launch of the EU Digital Covid Certificate coupled with the scaling back of isolation rules for vaccinated UK travellers has created a surge in travel bookings. Ryanair is expecting to post a small loss or break even in the 2020/21 financial year after posting a €237m loss between April and June, highlighting the customer traffic that is expected in the latter half of 2021. However, many are still campaigning for restriction-free travel, with some believing the industry is being hampered by barriers that make the idea of travelling less desirable for consumers such as vaccine status, passenger locator forms, and PCR tests. The road to recovery for the travel sector is seemingly much longer than other industries that have struggled during the pandemic. Conservative MP Henry Smith has called for furlough extensions for the travel sector until restrictions are eased to ensure the aviation sector is fully supported.

Bottom line: The headlines may be focusing on rising case numbers for now, but it’s yet to be seen if hospitalisations and fatalities will follow suit. For now, the UK infection rate is remaining low relative to total case numbers and the same rings true for Europe. However, in the US, deaths are rising at a faster pace mainly due to low vaccination uptake in predominantly Republican states. Travel is at a critical point in the Covid timeline; if hospitalisations can be kept low in the coming months, the Government can continue to relax restrictions, but if uncertainty returns, the current status quo will have to remain for a while longer.

The week ahead


Sterling began last week in the red, falling almost 1.6% by Tuesday afternoon as the UK’s Covid restrictions eased further and cases of the Delta variant remained at elevated levels. GBP/USD briefly broke below the 1.36 Interbank figure for the first time since April 2021 but quickly recovered, posting a weekly decline of just 0.23%. This week, the Bank of England’s Gertjan Vlieghe has spoken and suggested that the central bank shouldn’t cut its stimulus measures for at least several quarters. Previously, the policymaker signalled potential interest rate hikes if the labour market recovers smoothly following the end of government job subsidies in September. Elsewhere, the data calendar is light this week with a greater focus on next week which will see an update on UK fundamentals.

  • Wednesday’s Nationwide House Price survey is expected to show 0.3% growth month-on-month and 11.9% growth year-on-year.


Last week, the Euro traded within an 80-pip range against the US Dollar, but ultimately closed the week 0.27% lower as European Central Bank President Christine Lagarde announced that the ECB has learned from errors in previous crises and is vowing not to withdraw emergency support too early. In a similar fashion to other major central banks, the ECB will not necessarily tighten policy if price growth reaches the 2.0% target, even as far as three years out, and may even add further stimulus in the September meeting. The Federal Reserve’s policy announcement on Wednesday may be the key driver for the Euro in absence of any major ECB speakers this week.

  • Monday’s German Ifo Expectations survey missed estimates, falling to 101.2 from 104.0 previously, while the current assessment survey improved to 100.4 from 99.6.
  • Wednesday’s German GfK Consumer Confidence for August is expected to read 1.0, improving from -0.3 for July, while French Consumer Confidence is expected to remain unchanged at 102.0.
  • Thursday’s Consumer Price Index readings are forecasted to come in at an annualised 3.2% price growth in Germany, up from 2.3% last month. Meanwhile, Spanish CPI is expected to read an annualised 2.7%, unchanged from last month. Germany’s Unemployment Rate is also expected to tick lower to 5.8%.
  • On Friday, the Eurozone Unemployment Rate for July is predicted to remain unchanged at 7.9% and the Eurozone CPI reading is forecast to show 2.0% price growth year-on-year. Furthermore, the annualised GDP reading for Q2 is estimated to be 13.2% growth, up from -1.3% previously.


The US Dollar gained against most of its peers last week, finishing 0.24% higher on a trade-weighted basis, extending its gains to over 4.0% since the beginning of June. The Fed will take the stage on Wednesday evening, although analysts expect little from this month’s meeting and are instead looking to the Jackson Hole symposium in August or September’s meeting for meaningful change in monetary policy guidance. Nevertheless, Chair of the Federal Reserve Jerome Powell’s choice of words, particularly over US inflation and the labour market, may cause short-term volatility across asset classes and is likely to be the key driver in FX this week.

  • Tuesday’s CB Consumer Confidence for July is expected to come in at 124.0, down from 127.3 for June.
  • Thursday’s annualised GDP reading for Q2 is forecast to show 8.5% growth in the US economy while the Initial Jobless Claims reading for the past week is expected to show 380k people unemployed, down from 419k previously.
  • On Friday, the Fed’s preferred inflation measure, PCE Core Deflator is pegged to show 3.7% price growth year-on-year to June, up from 3.4% last month. The Chicago PMI for July is expected to read lower than June at 63.3 versus 66.1.


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