HSBC have informed clients of their commercial and investment banking unit that 2021 will likely see GBP continue to struggle.

HSBC have informed clients of their commercial and investment banking unit that 2021 will likely see GBP continue to struggle.

In a monthly foreign exchange forecast briefing note, HSBC analysts say "the outlook for GBP is not promising, in our view, given the broader underlying flow dynamics."

"We find little reason to be cheerful about GBP in 2021 and believe it will be a G10 underperformer alongside the USD” stated Paul Mackel, Head of Foreign Exchange Research at HSBC.

The valuations on British focussed stocks are far from impressive, close to record lows. According to the Bank of America, UK stocks are said to have underperformed when compared to EU stocks by as much as 20% since the Brexit referendum. The GBP/USD exchange rate has meanwhile declined by 8% in the same period.

"After a challenging few years, there has been a growing sense that underweight positioning in UK assets will be unwound this year, ushering in a new dawn for GBP," said Mackel.

Global investors could be looking to pull their assets from the UK and invest in countries with a more promising economic outlook to diversify their portfolio.

HSBC predict GBP/USD rate at 1.34 through this year, with GBP/EUR at 1.06.

Will the Optimism and Positivity for the Pound Continue?

Sterling Proving Resilient Despit Negative Forecasts

Despite HSBC’s predictions there is reason for optimism, and it seems their predictions are currently not going to plan, with the pound proving resilient despite the current circumstances.

Brexit has anchored the pound for over four years, the lack of clarity surrounding a deal really hurt sterling and many investors chose to stay away from UK investment.

 

 

Many analysts were predicting a significant spike in sterling value following the announcement of a Brexit deal, but this failed to materialise. This could be potentially due to the quality of the deal or other contributing factors such as the announcement that the UK was to go into national lockdown once more due to the rapid rise in Covid-19 cases.

The uncertainty surrounding Brexit clearly hindered the pound making substantial gains against the majority of major currencies, but now we have some form of clarity it could be the case we have pulled anchor and now we could see the pound start to achieve gradual gains.

We witnessed a spike yesterday on GBP/EUR for example, with GBP/EUR breaching a key resistance point of 1.13. We had seen interbank levels above this last week but it quickly retracted back into the 1.12's. Other than that, the last time this level was breached was May 2020. Yesterday’s spike can be attributed to positive news surrounding a potential trade deal involving financial services with Switzerland as reported by Amelia Spencer yesterday.

Despite some shocking economic data releases of late, they do not seem to have had their usual impact. This could be due to the fact that they are to be expected. Services data for example showed very poor figures, but how do you think that services data will perform when the entire nation is in lockdown?

House prices have continued to rise, which could be due to the drop in stamp duty and also with savvy UK residents choosing to invest their money as there is nowhere near the usual options on spending.

The rapid rate at which citizens of Britain are being vaccinated is also a reason for optimism, with over 6.8 million being vaccinated already. This could mean the UK economy starts to recover from the economic fall-out of the pandemic in a quicker fashion than it’s counterparts which bodes well for the pound.

Data Releases of Consequence

Today we will witness the release of  Harmonised Index Consumer Prices (HICP) for Europe. This is an index of consumer prices built up on  the basis of a statistical methodology that has been harmonised across all EU member states. HICP is a measure of prices used by Governing Council of the EU to define and assess price stability in the Eurozone. This does have the potential to move markets so could be well worth keeping an eye on.

Later in the day we have US GDP. GDP is a key indicator as to the health of an economy and has the clout to change US dollar value. The consensus is for a rise of 3.9% although if data lands away from this prediction expect volatility on the market.

Read our monthly currency forecast

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