Yesterday’s trading hit a high of 1.1250 but before edging down to the low 1.12’s again which put the rate at a 10-day high since 3rd January.
In contrast, the GBP/USD rate jumped to new highs of 1.3695 on Wednesday which tests the 2.5-year high not seen since 30th April 2018 with the possibility of levels moving higher. Throughout the majority of last year and indeed the start to 2021, many currency pairings have not followed many clear trends but the pound has consistently strengthened against the US dollar. It continues as the effects of the pandemic are starting to ease off with the establishment of now not 2 but 3 vaccine companies as Moderna begins its initiation into the UK public. With 200k+ vaccinations a day and the attempt to get all over 70’s, highly vulnerably people and key workers vaccinated by mid-February, the circa 15 million people mean that the UK is certainly one of the global trailblazers when it comes to getting its citizens immune to COVID-19.
For exchange rate predictions moving forwards there are a few from banks and investment groups worthy of noting. Barclays are predicting GBP/EUR rates to be trading at 1.13 in the summer and progress to almost 1.15 by year end whilst Wells Fargo and the Bank of America are less optimistic as they are giving suggestions for 1.06 and 1.07 to be more likely. When it comes to GBP/USD, the range of projections is also quite large with up to a 12-cent difference by various banking groups. Barclays for instance, who were bullish about where GBP/EUR would progress to believe that the USD will regain some of its lost ground and pull the mid-market level down to 1.32. Yet, at the same time Goldman Sachs have suggested 1.44 is on the cards!
Judging by the outlook of these two currency pairings, current events still remain remarkably uncertain considering that the progression of the vaccines on a worldwide scale is appearing evermore optimistic. Therefore, it could come down to who emerges from the national lockdowns and economic turmoil the fastest as to which respective currency starts making the more significant inroads first.
Whilst the vaccination project is comfortably underway, it is not all positive news for sterling as the Bank of England is still debating the possibility of an interest rate drop away from the current 0.1% which could take another turn again for Sterling strength. As mentioned in yesterday’s market report, a lower, or even negative rate, means that the return on investing in the pound is less financially appetising than at higher interest rate and may cause investors to purchase other currencies who provide greater profits.
As for economic data coming out for the UK, it remains to be a quiet week and even next week the only significant release will be for the Consumer Price Index on Tuesday where previous figures were at 0.3%. Naturally, any deviation away from these figures could incite currency volatility with the propensity to generate a quick spike on the markets.
The eurozone also has little out which could disrupt the one-sided growth that the pound is enjoying in the near-term. Next Tuesday could change this as this will bring the arrival of both the German Consumer Price Index (CPI) and the European Central Bank lending survey. The Germans CPI is likely expected to remain at -0.7% and even if this were to shift higher, the news still might not be considered a benefactor for single currency growth as the EU is still suffering economic difficulty and would need something more substantial to resurrect the economy.
In contrast, the Lending Survey should give a comprehensive insight into the financial wellbeing of EU citizens for taking out personal loans for purchases such as houses and services. Understanding the health and purchasing power of a country or the bloc as a whole can provide an idea of how quickly the group can recover from the pandemic and progress out of the recession-strict state it currently finds itself in. Predications which point to a fast recovery could give the euro a needed lift and regain the lost ground against the pound.
Whilst the GBP/USD rate has been looking like a good opportunity to buyers recently, the US dollar has at least managed to claw back some ground from the euro so far this year. The currency pairing which hit 1.2340 on 6th Jan – another 2.5 year low – has now managed to bounce back in just over a week having gained almost 2 cents as it trades within the 1.21 range at the end of yesterday’s trading.
This might be based more off of euro weakness than from US dollar strength as there has not been a massive amount of positivity emanating from the US recently. The possibility of President Trump being the first president ever to be impeached twice has been flooding the headlines and is the top talking point which could influence any USD movements. Even fellow Republicans have started to take the Democrats side and follow US elect Biden to remove Trump from office before the inauguration of Biden into the White House in less than a week’s time on the 20th January. Calls for him to be removed are rising following the riots on the Capitol last Wednesday which lost 5 lives and a number of US politicians to contract coronavirus. This uncertainty should be a trigger point for US dollar weakness but seems that problems such as the lack vaccination speed in the eurozone is what is potentially generating this currency movement.
Other drivers for market volatility could originate from the US Federal Reserve bank chairman Jerome Powell. His speech later today which usually gives an overall awareness of the US and what is expected to come later on in 2021 such as interest rate decision and quantitative easing. From market releases we will see the retail sales figures for December which are expected to show a slight recovery from -1.1% to 0% whilst the Michigan consumer spending index has rallied up to stunning figure of 80. This is a study showing, from a personal viewpoint, how much and what consumer confidence people have to spend money at the moment. With levels higher than 50 deemed positive, the result seems surprising considering that the US still has by far the most COVID-19 cases and unemployment levels are rising but at least indicates the positive outlook and perception that the US have for this year.
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