Sterling has traded positively throughout the week so far against the euro and started yesterday’s day of trading knocking on the door of the 1.17 level, previously breached on the 24th of February which was the highest level seen in 11 months. GBP/EUR dropped to 1.165 at the lowest point throughout the day but recovered and was sitting comfortably at 1.168 at the time of writing.

As has been covered in several of our reports, sterling continues to be buoyed by the rapid vaccination rollout in the UK which has now seen 22.8 million citizens receive the first dose of the vaccine, with over 1.2 million people fully vaccinated against the virus.

Analysts at Nordea Bank say a key threshold any vaccination programme must achieve in order to effectively tip the course of a pandemic is to reach about 35% of the adult population. Analysts at the Scandinavian lender and investment bank have looked at Israeli data to build a template for the rest of the world, given the country's rapid rollout programme.

They believe this is a milestone the UK is still likely to achieve ahead of other major countries, giving sterling the advantage against other major currencies. However, it is worth noting that although almost a third of the UK population has received their first dose, less than 2% in the UK have been fully protected.

Will GBPUSD Break Above 1.45?

Sterling’s performance against the dollar has been more subdued over the weeks trading, yesterday saw the rate fluctuate almost a cent between 1.384 and 1.393, however, GBP/USD was above the 1.39 threshold at 1.393 at the time of writing. GBP/USD interbank rates have been as high as 1.42 in recent weeks, but many analysts note the dollar’s recent recovery against sterling has been supported by the increase in US treasury yields. It is therefore worthwhile noting that UK government bond yields have also risen sharply, with the yield on the 10-year Gilt up from 0.156% in early January to the current 0.741%. A further rise in UK government bond yields is likely to attract investors to the UK and therefore provide further support to sterling’s value.

The latest Bank of England interest rate decision will be released a week today, a movement towards negative rates would show a lack of confidence in the UK’s ability to recover from the latest lockdown and could signal bad news for sterling.
Bank of England governor Andrew Bailey said the central bank would not raise interest rates in response to the rise in inflation. It would need to see “clear evidence” that inflation would be sustainable at the 2 per cent target before it moved. He did also highlight that the BoE was working on preparations for negative interest rates if the recovery disappointed. “These decisions are detached from our current or likely policy decisions but do recognise the increasingly two-sided nature of the risks we face,” he said.

If you have any upcoming transfers involving sterling, then it is worth getting in touch with your account manager who can keep you up to speed with developments.

Latest ECB Interest Rate Decision Today

The euro has steadily lost ground against sterling since the start of the year and has lost over a cent against the dollar in the last week. EUR/USD sat at 1.204 on the interbank this time last week but has spent the day’s trading range-bound around 1.19, sitting at 1.192 at the time of writing.

Euro exchange rates continue to be affected by the EU’s ability to vaccinate its population. The rollout in Europe has encountered several difficulties over the last few months but still holds significant influence on the eurozone’s ability to recover from the latest coronavirus induced lockdown.

On Tuesday European Council President Charles Michel accused the UK on having an ‘outright ban’ on exports of Covid-19 vaccines. European officials have made comments on this subject before. European Commission President Ursula von der Leyen said during a press conference in February that the United States and Britain have systems in place that block vaccine exports.

However, the British government was quick to deny the accusations on Tuesday. “The UK government has not blocked the exports of a single Covid-19 vaccine. Any references to a UK export ban or any restrictions on vaccines are false,” a government spokesperson told CNBC.

There has been little economic data of consequence in the eurozone this week, however, the latest European Central Bank interest decision is due today at 12:45. If the ECB should decide to raise interest rates then this is likely to have a positive impact on the value of the single currency, however, if interest rates are kept the same or even cut then the value of the euro could suffer further.

US Inflation Rise Fuels Fears of Goods Price Increase

Inflation Data Causes the USD to Slip

The dollar fell against a basket of major currencies yesterday as inflation data released in the US showed Consumer Price Index (CPI) rose by 0.4% last month. This was in line with market forecasts and has eased some fears from investors that the Federal Reserve would tighten monetary policy earlier than expected.

Joe Biden’s $1.9tn coronavirus relief package received final backing from the US House of Representatives on Wednesday, sealing congressional approval for a massive fiscal stimulus package that will provide significant support the US economy. Press secretary Jen Psaki announced that President Biden plans to sign the bill at the White House on Friday.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.