Monthly Update: August 2021

“Far from a quiet holiday season, this August saw high volatility in the global risk mood, as the fast pace of Covid spread resumed and the events in Afghanistan shook the markets. Last week, investors were eagerly awaiting the Jackson Hole Symposium, which did not elaborate on when and how the Fed will scale back the unprecedented stimulus measures it had rolled out last year. Market participants will have to do the guessing themselves for now, guided by the data from the labour markets.”

Tim Hallinan, Trading Director

Main Headlines

Lawmakers in Washington have sought approval for Biden’s $3.5trn spending package and finally gained bipartisan support for a $1trn Infrastructure Bill. Democrats in the House of Representatives reached a $3.5trn deal to provide investment in education, childcare and green energy. Earlier this month, 19 Republicans crossed the aisle in the Senate to vote through the $1trn Infrastructure Bill by 69 votes to 30 votes, which will upgrade America’s transport and broadband networks. The Federal Reserve has hinted at tapering its sizeable $120bn-per-month stimulus programme following a FOMC Meeting. Vulnerable US citizens will be offered a third Covid-19 mRNA booster shot from September to tackle Delta variant cases. The US withdrawal from Afghanistan controversially continues, as amid evacuation efforts at Kabul International Airport, the president stuck to his August 31st withdrawal deadline in spite of G7 pressure to extend it.

UK Parliamentarians were recalled from their summer recess on August 17th to debate the country’s responsibility in relation to the Taliban’s resurgence and resumption of power in Afghanistan, before Boris Johnson chaired the G7 and urged members to find a longer-term solution for Afghanistan and it’s citizens. The UK Economy grew by 4.8% in Q2 of 2021 according to ONS figures, despite labour shortages due to positive Covid-19 cases and Brexit, as well as a 2.5% drop in retail sales in the month from June to July. The Bank of England stated that basement interest rates would prevail as the central bank continues to chase it’s 2.5% inflation target but that a tightening labour market may hold the keys to raising rates in the medium term. Scotland’s budget deficit rose sharply to 22% of GDP in 2020-21, as compared to the UK’s budget deficit of 14.2% across the same period.


Compared to a month ago, Sterling is higher against the dollar and the euro. The pound started the month on a bullish note, as Covid cases seemed kept under control, despite the lockdown easing, and after the EU backed off the threats of action over Northern Ireland. It was further propped up by the anticipation of a hawkish Bank of England update. The BoE left the policy unchanged, but its announcement contained undertones which also kept in place the expectations that it would be among the first of the world’s central banks to begin tapering. Sterling rose, although its gains were quickly limited by reports of an unfolding rift between the PM and the Chancellor, as well as by the renewed concerns around Brexit, and, most importantly, the Covid-related death toll jumping to its highest in 5 months. Concerns that job losses will rise after the furlough scheme ends in September also pressured the pound, despite data showing a fall in unemployment and strong wage growth. Mostly driven by external factors – such as the recovery in global stock prices – the pound recovered some of its losses in the last week of August.


The euro is lower against the dollar and the pound than it was a month ago. The euro started the month on moderately upbeat economic data. Nevertheless, despite favourable fundamentals and high morale across the region, positive euro movements were capped this month by the ECB continuing to be perceived as a laggard when it comes to considering tapering. Disappointing German Industrial Production indicators further soured the mood, which was then decimated by the poor reading of the ZEW market sentiment survey. The single currency retreated for 8 days in a row against most majors, falling to an 18-month low against the pound as the resurgence of Covid and fears of slow economic recovery weighed on the euro. The decline took a breather when the eurozone posted higher-then-expected surplus figures and the ECB reaffirmed that it doesn’t plan to curb stimulus support in the near future. The rush for haven assets brought by the raging of the Delta variant and the collapse of the Afghan government led the shared currency to be bet against the pound and heavily offered against the dollar. At the end of the month, market participants were betting on the eurozone maintaining lower interest rates and having a slower economic recovery than the US.


The dollar is higher than a month ago versus most major currencies. It started the month on a low against most G10 currencies, after Jay Powell focused on the possibility of higher inflation at the dovish press conference. The greenback jittered ahead of the US July nonfarm payrolls report, which was seen as a main clue to the rate outlook. The report ended up exceeding expectations, sending the dollar on its biggest daily gain in three weeks. However, it was soon followed by the disappointing consumer confidence data, which, alongside lower bond yields, weighed on the dollar. The growing risk-off mood then drove safe haven flows towards the dollar – even the weaker US retail sales data strengthened the dollar by fuelling global investor concerns. The dollar growth continued after the Fed minutes reiterated commitment to start tapering this year. Towards the end of the month, the number of new infections in America achieved its highest point since January, making further financial support from the US Federal Reserve increasingly likely. The Jackson Hole Symposium, which had been postponed to the last Friday of September, did not feature much clarity on the tapering beyond Jay Powell saying it could start this year, slightly weakening the dollar.


The Canadian dollar is slightly stronger versus the US dollar than a month ago. Market sentiment was dominated by investor’s focus vacillating between pessimism over the resurgent virus and optimism about the global recovery. The loonie was on a slowly rising trajectory until the third week of August, when it suddenly shot upwards, to then sharply drop the following week. The turnaround over the summer sets the stage for a strong rebound in the second half of this year that will likely bring economic activity well above pre-pandemic levels. Provinces are actively looking to avoid lockdowns by proposing vaccine passports to access non-essential businesses, companies implementing regular testing, and a federal vaccine mandates for workers and travellers. However, a rise in case counts could affect consumer confidence that could prove to be a material shock to economic and market sentiment. The Bank of Canada has decided to let inflation run above its two-per-cent target until the economy recovers and it continues to keep a close eye on the country’s slow economic recovery ahead of its next policy decision, scheduled for 8 September.


The UAE Dirham is mostly unchanged versus the dollar compared to the month of July, as the currency is pegged to the dollar. There have been very marginal peaks and troughs across the month of August, however, the trajectory of the Dirham is a consistent one, never falling below a minimum compared to the dollar and never pushing past a maximum value. The Dirham is forecast to weaken considerably against the dollar from October 2021 to July 2022, despite a 0% change over the past month. The Dirham is unlikely to experience lows due to the Covid-19 Delta variant as weekly case numbers continue to fall in the UAE, although cases could spike as travellers from across the world flock to Abu Dhabi to the World Expo 2020. Consistency is the name of the game again when it comes to interest rates, which have remained balanced in the UAE at 1.5% since the start of the pandemic in 2020, allowing inflation to rise slowly without putting pressure on prices in the Emirati economy and maintaining relatively low costs of borrowing.


The Australian dollar is mostly unchanged versus the dollar compared to a month ago. In the first week of August, the Reserve Bank of Australia persisted on its commitments to stick with the tapering plans, shrugging off concerns brough about by the Delta variant. The commodity-linked currency then followed a spike and a downturn in oil prices. It proceeded to sink to 9-month lows amid broad-based risk aversion due to lockdowns in the country’s major cities and the falling prices of iron ore. The end of the month saw general gains across risk assets and Prime Minister Scott Morrison said Australians must start to learn to live with COVID-19 when higher vaccination targets are reached, giving the currency a generous boost. Nevertheless, the Australian dollar remains in a vulnerable position, with depressed expectations for interest rate rises, the Covid-19 situation in the country and China’s clampdown on steel production all weighing on the currency.

What to look out for

  • 3 September: EU Retail Sales YoY
  • 3 September: BoE Monetary Policy Report Hearings
  • 9 September: EU ECB Interest Rate Decision
  • 14 September: 75th United Nations General Assembly
  • 19 September: Russia Parliamentary Elections
  • 22 September: US FOMC Economic Projections
  • 22 September: Fed Interest Rate Decision
  • 23 September: GBP Monetary Policy Summary
  • 23 September: BoE Interest Rate Decision
  • 26 September: German Parliamentary Elections
  • 30 September: EU Consumer Price Index YoY