Weekly Update: Pound Surges as BoE Dismisses Negative Rates, US Dollar Reverses Losses

GBP/EUR Exchange Rate: Pound Firms Despite Threat of Tougher Restrictions

After drifting higher at the end of last week, the Pound to Euro exchange rate began to accelerate sharply through the first half of this week.

This uptick in Sterling sentiment came in spite of growing concerns that parts of the UK could face tougher coronavirus restrictions in the days to come as the NHS is under considerable strain due to a surging number of cases and hospitalisations.

However, there are signs that cases may be beginning to peak in certain hotspots like London, which alongside some positive vaccination numbers has helped lend support to Sterling.

Looking ahead, it seems safe to assume that coronavirus developments will remain a key concern for GBP investors going forward, with the Pound potentially facing some headwinds if the UK government is forced to impose stricter measures.


GBP/USD Exchange Rate: Pound Strikes 31-Month High

The GBP/USD exchange rate floundered through the latter half of last week as warnings that England’s lockdown could last into March undermined Sterling sentiment.

After a slow start to this week’s session, the GBP/USD exchange rate was able to rocket higher on Tuesday in the wake of comments from Bank of England (BoE) Governor Andrew Bailey.

Bailey poured cold water on speculation that the BoE could slash interest rates below zero as he suggested ‘there are a lot of issues’ with negative rates.

The hawkish comments prompted a significant rally in Sterling, one which saw the GBP/USD exchange rate propelled to a 31-month high.

Still to come this week, we have the publication of the UK’s latest month GDP figures. This is likely to drag on the Pound as November’s release is expected to report a sizable contraction in economic growth due to the lockdown that was in place at the time.


USD/GBP Exchange Rate: US Dollar Fluctuates in Cautious Trade

The USD/GBP exchange rate trended higher through the second half of last week as a rise in US bond yields bolstered the appeal of the US Dollar.

The ‘Greenback’ then accelerated at the start of this week, with demand for the safe-haven currency being bolstered amidst a sell-off in equity markets.

While the US Dollar subsequently pared its gains as market sentiment began to improve, ongoing concerns over the rise in global coronavirus cases has helped to limit the pullback in USD.

In the spotlight for USD investors later this week will be a speech by Federal Reserve Chair Jerome Powell.

Markets will be looking for Powell’s views on whether or not the Fed should begin tapering its monetary stimulus, with the US Dollar likely to weaken if he suggests he is comfortable with the current stimulus programme.


EUR/USD Exchange Rate: Euro Undermined by Underwhelming Data

The EUR/USD exchange rate has suffered a notable setback over the past week, which saw the pairing tumble from a 32-month high.

This plunge was initially triggered by some lacklustre EUR data releases towards the end of last week, with weaker-than-expected Eurozone inflation and a startling plunge in the bloc’s retail sales in December both weighing heavily on the single currency.

The euro then remained on the defensive at the start of this week, as concerns over the slow rollout of vaccinations and the news that Germany is likely to remain in lockdown until April further dampened EUR sentiment.

While the euro has managed to claw back most of this week’s gains on the back of USD weakness, the single currency could face additional pressure later this week if Germany’s budget for the coming year is not seen as doing enough to support the country’s economic recovery.


Matthew Andrews

Contact Matthew Andrews