As the Pound holds firm against its peers, many economists predict more gains for Sterling. As a direct result of the UK’s vaccine programme, Dutch bank ING have upgraded their “GBP forecast to EURGBP 0.85 (1.1746) for the end of 2021 and 0.82 (1.2195) for end 2022”. The report added that “with the risk of a 'no deal' Brexit no longer hanging over markets, the persistent GBP undervaluation of recent years should begin to dissipate”.
After a strong finish to last week, GBPUSD traded sluggishly on Monday. Cable opened well at 1.3731 but struggled to gain any momentum and depreciated over the course of the session. The pair ended the day at 1.3673, and despite struggling overnight in the Asian session, has bounced back to test 1.37 this morning.
GBPEUR also made a loss in yesterday’s session – opening at 1.1337 and closing at 1.1329. Looking ahead for this pair, many believe that the divergence in the pace of the vaccine rollouts between the UK and EU could lead to Sterling outperforming the Euro. If the vaccine is successful and the UK can quickly get back to “normal”, there is “scope for a stronger 2Q21 recovery and less dovish Bank of England (vs the European Central Bank) should all benefit GBP vs EUR”.
EURUSD dropped back down into the 1.20 range yesterday after a tough session. The pair started the day at 1.2112 but quickly came under selling pressure and closed Monday at 1.2068.
Interestingly, ING’s latest FX report says that GBP/USD’s gains “should be even more pronounced as the pair will also benefit from the rising EUR/USD – GBP/USD should breach 1.50 this year”. Not only this, the downside risks that do remain will likely “only slow” Sterling “rather than reverse” the currency’s upside. The major risks for Sterling moving forward will be Scottish Independence and increased tariffs from the EU (should the UK deviate from EU labour laws).
