Economist are becoming increasingly confident in the Pound as the UK’s success in distributing COVID-19 vaccinations boosts the chances of an economic rebound. Dutch bank ING are just one of a number of financial institutions who have upgraded their forecasts for Sterling, and “according to a Bloomberg survey… analysts see the currency ending the year up 2% at $1.40, having lifted predictions from $1.36 just a few weeks ago”. Markets now look ahead to the upcoming Bank of England interest rate decision tomorrow.
GBPUSD started Tuesday just below the 1.37 mark, opening at 1.3697. Despite trading above 1.37 in the session, the pair was unable to maintain momentum at this level, closing Tuesday at 1.3643.
GBPEUR in contrast was able to gain some upside in yesterdays session. The pair started the day at 1.1339 and closed at 1.1351. As noted in yesterday’s report, many economists believe that the divergence in the pace of the vaccine rollouts between the UK and EU could lead to Sterling outperforming the Euro.
EURUSD added to its losses on Tuesday – opening at 1.2079 and closing at 1.2019. It has been reported that the divergence in rhetoric between the European Central Bank and the Federal Reserve may induce more downside to EURUSD in the near term, with “several ECB Governing Council members flagging the possibility of cutting interest rates further into negative territory”. Klaas Knot, President of the Dutch central bank recently said that “there is still room to cut rates, but of course that would also have to be seen in conjunction to our overall monetary stance”, while Ollie Rehn, Governor of the Bank of Finland, has reiterated the ECB’s commitment to “use and adjust all our instruments as appropriate”.
In contrast, while several Fed members have made hints that the US central bank may “taper its quantitative easing (QE) program later this year”, Chairman Jerome Powell made clear that the Fed would “take some time before altering its asset purchasing scheme”, noting that “the whole focus on exit is premature”. Thus, with the ECB continuing to assess if it “will adjust its monetary policy levers further in an attempt to stoke the region’s inflation outlook, investors may continue to put a premium on the Greenback over the Euro in the near term.”