GBP/EUR still sees 1.17 as the key resistance level that it cannot breakthrough for any reasonable period of time before dropping 0.5 to even a cent off the pace. GBP/USD have had a more severe reaction with the 1.40+ levels seemingly a very distant position as trade levels have now fallen anywhere up to 5 cents with the biggest trough seeing 1.36’s.
Like most contemporary changes at the moment, it appears COVID and vaccinations are the key drivers behind this movement. Sterling saw its 12-month peak against the euro as a result of the immense vaccination speed within the UK which sharply contrasts the slow, political turnout within the eurozone. Now however, with April’s supposed thinned-out supply of vaccines for the UK, the potential for a reduction in vaccination speed could hamper the pound. Essentially, the same factor that caused its recent gains, could also now be the same thing that sees sterling tail off or drop further against the likes of the US dollar.
Having said this, the UK has recently passed 30mn 1st doses for vaccinations and may still have time to negotiate a greater vaccine supply before the rollout is adversely affected. Focus has also turned to second vaccine doses which have began to accelerate in pace which now tops more than 3 million. This should hopefully reinforce some confidence behind the pound if it means that vaccinated citizens have a much smaller chance of contracting or spreading the virus.
The only data release worthy of noting for the pound this week will come on Wednesday with the arrival of the revised GDP Q4 announcement. Whilst this shows overall economic performance within the UK, this figure is not expected to shift from the current 1%. This may represent the beginning of a more regular GDP pattern for the UK as these figures are much closer aligned to the pre-pandemic levels where growth usually ranged between 0-1% for the prior few years. Economic activity can still shift enormously though considering that the previous two quarters showed a 20% contraction followed by a 16% spike.
Whilst the euro has managed to claw back against riskier commodity currencies such as the pound, less volatile and safe-haven currencies like the US dollar have managed to make some significant gains. January saw the EUR/USD levels in the 1.23’s which represented a 2.5 year high but has collapsed harshly since then and now resides around 1.17.
Just like with the sterling section, this can be attributed to the vaccine rollout. Many headlines recently have stated that the eurozone is headed for its 3rd wave of coronavirus and events in some EU countries are starting to become dire. In France, Parisian doctors have described their hospitals as “overwhelmed” and may have to start choosing which patients to treat. However, despite this the French president Emmanuel Macron has now fully lockdown the country. Should cases continue to rise, France may have to completely shut down again later on this year and continue to delay its economic recovery. As a result, this could provide more problems for the single currency.
Germany is no better either. COVID checks and tightened control at airports are being implemented but it could be a little too late since the economic powerhouse of the EU is already experiencing 20k cases daily. Estimates are that Germany could see as many as 100k daily cases within the next few weeks if they cannot bring the rising levels under control. To give some comparison to this, the UK peaked earlier this year at over 60k daily but now has levels tapering off around 5k.
Regardless of the difficulties Germany is facing, its economic figures are looking surprisingly optimistic. Consumer Price Index (CPI) on Tuesday is expecting a slight increase from a previous 1.6% to 2% whilst on Wednesday the comparative EU equivalent should remain unchanged at 1.1% suggesting that Germany is bouncing back a little faster than the rest of the bloc. More positives follow on Thursday as retail sales figures are estimating a sizeable jump from -8.7% to 1.3%.
It is unlikely that these figures will have any influence over which direction the euro moves since the markets seemingly react to little else other than pandemic-related figures and associated vaccine numbers. However, it is at least showing signs that the financial recovery has begun, however slow it may take as a result of increasing COVID-19 levels.
This week US president Joe Biden will begin to lay out his $1.9 trillion recovery package which begins with infrastructure planning in the first few weeks and then shifts its focus towards healthcare. Many changes are expected to take place within the upcoming weeks and months so this could be the start of some increased volatility around the USD as plans are scrutinised and a greater understanding of the timeframes surrounding economic recovery take place.
Alongside this new roadmap, Biden has also pledged to provide 200 million vaccinations to the public within his first 100 days as president. The US vaccination speed has been remarkable but is still a very challenging task considering that this would represent more than half of all Americans receiving at least 1 vaccine dose in the next couple of months.
His speech, which will outline the roadmap, will come on Wednesday and will highlight other points as to how the US will spend this multi trillion-dollar recovery package. It does however paint the USD in a positive light and could result in further movements for USD later this week.
Following this optimistic outlook are employment figures which could also buoy the currency in question. Wednesday will also bring the ADP employment change announcement which suggests that the previous 117k new jobs to the market last month is predicted to rise to 550k for March – one of its biggest jumps in recent times. This is matched with the US non-farm payroll on Friday which shows a change from 379k to 655k showing that the US is really picking up pace where employment in concerned.
The US certainly has enough important events coming up this week but the most influential of which will occur on Wednesday so this is certainly worth keeping an eye out if you are in the market for US dollars. Get in touch with your account manager here at FCD to keep up to speed with the latest market movements.
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