As we approach the end of April sterling exchange rates have cooled off and the bullish run for the pound appears to be over at least for now. Yesterday was particularly flat and with GBPEUR hovering around the 1.15 level, and GBPUSD hovering around the 1.38-1.39 levels, the pound appears to have consolidated a few cents below its annual highs.
Our regular readers will be aware that the initial boost to the pound’s value came off the back of trade negotiators avoiding a no-deal Brexit with the EU. Following this, the successful roll-out of the Covid-19 vaccination then provided another boost to sentiment surrounding the UK economy moving forward. This kind of positive news gave GBP exchange rates a major boost and the currency was the best performing major currency in the first quarter of this year.
With other nations and trading blocs now catching up with the UK, we have seen some of the shine taken away for sterling and now the currency appears to have cooled off, although it is consolidated comfortably above the kinds of trade levels available in late 2020.
Moving forward there could be further headwinds for GBP if once the global economy opens again, it’s abundantly clear that the UK is less of an economic force now that it trades outside of the EU.
The Chancellor of the Exchequer, Rishi Sunak has previously pledged to introduce a serious of measures to ensure the UK maintains its position as one of the worlds leading financial centres. According to reports from Reuters there are many financiers that so far feel quite underwhelmed with the measures introduced, and there are still concerns regarding London’s position as a financial capital. The UK’s financial sector is £130bn industry and since the new year thousands of jobs have been lost, and London is losing its stronghold on clearing houses with Amsterdam picking up much of the business London is losing. Clearing houses act as official go-betweens for buyers and sellers of derivatives contracts and London has previously had a stronghold on this area of commerce.
Those of our clients following the pound should pay close attention to upcoming economic data as now that politics has somewhat taken a backseat, data could now become the main driver of sterling’s value. Data out of the UK is thin for the remainder of this week, but feel free to get in touch if you wish to discuss upcoming data releases that could impact GBP exchange rates.
There have been some positive developments for the EU recently which could help the euro fight back against the strong start to the year for the pound. Now that the European Union is slowly catching up with the UK and the US in terms of vaccinating the public against Covid-19, the EU is beginning to relax some of its restrictions in countries such as Italy and France. This will provide a welcome boost to the EU economy as a whole and also the tourist sector. This week news reports highlighted that the EU is willing to allow vaccinated American tourists into the trading bloc in the summer. The tourist industry is a key part of many EU countries, so this news has been welcomed by the markets and provided the euro with a slight boost.
Last weeks ECB meeting also provided the Eurozone with some optimism as the European Central Bank upgraded its risk assessment to balanced as opposed to the downside.
Brexit is once again in the European news this week as EU lawmakers have this week been debating the post-Brexit trade agreement between the UK and EU. The deal approved in December has been in place provisionally until the end of this month, pending approval for the European parliament. It’s expected to get overwhelming support with much of the debate this week along the lines of how the EU should operate in future to avoid a similar situation with another key member of the EU.
Christine Lagarde, the ECB President will be speaking later today around 3pm and may touch on this, so it is worth being aware of if you have a pending euro transfer to make. Consumer Confidence figures will also be released early tomorrow, covering April so this release is also worth monitoring and it’s due to be released at 10am.
According to a poll carried out by Reuters, more than half of Americans currently approve of President Joe Biden after almost 100 days as US President. His predecessor, Donald Trump never managed to reach this level of support although his approach was of course more abrasive as many will remember.
The high levels of support for President Biden will help him push through his plans for further infrastructure spending which is a term I think we will hear often over the next few years, as it’s one of the Democrats top priorities.
Interestingly Biden has quite a high level of support across the political spectrum when it comes to his response to Covid-19. Last week US Covid cases fell sharply, with deaths directly linked to the virus hitting the lowest levels since October over the past week. As of Sunday, 43% of the US population had received at least one Covid vaccination, so there are signs of the US economy getting back to normality as with many other developed economies.
Cable, which is the term used to describe GBPUSD is predicted by some major institutions to remain relatively flat for the remainder of the year. Commerzbank has predicted that the pair will trade at 1.36 by the end of June which is a slight drop from current levels, but then they expect it to reach 1.38 by the end of September. US bank Citibank is slightly more bullish with a prediction of 1.40 longer term, and French bank BNP Paribas is the most bullish with an expectation of 1.45 over the next 12-months. Should BNP Paribas prediction prove correct, the GBPUSD rate will break above the current 12-month high of 1.4250.
Later this evening the Fed Reserve will announce its most recent Interest Rate Decision, with no changes from the current rate of 0.25% expected. The Fed’s Monetary Policy Statement afterwards could offer some insight into their plans though, so this is worth being aware of.
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