GBP/EUR – Pound Boosted as Bank of England Downplays Negative Interest Rates
After the Bank of England (BoE) opted to talk down the prospect of negative interest rates at its February policy announcement, the appeal of the Pound improved sharply.
Investors quickly moved to price in the lower odds of any fresh monetary loosening action to come, even as worries over the health of the economic outlook remained.
While UK consumer spending fell to its lowest level since May in January, this was not enough to keep GBP exchange rates under pressure for long.
However, as the ongoing national lockdown continues to put pressure on economic activity, growing fears of a weak first quarter GDP could keep a dampener on demand for the Pound.
GBP/USD – Pound Soars against US Dollar as Vaccine Momentum Continues
The Pound remained underpinned by the UK’s impressive vaccination rollout, with the number of people receiving their first dose exceeding 12 million.
As optimism builds over the UK’s economic recovery due to the solid pace of vaccinations, it is still uncertain when current lockdown restrictions will be eased, limiting the upside potential in the Pound.
The Pound could come under pressure on Friday with the release of the fourth quarter UK GDP report.
If the quarterly growth rate slows significantly, or even falls into negative territory, this could drag GBP exchange rates sharply lower across the board as markets brace against the possibility of a deeper economic decline.
USD/GBP – Disappointing Payrolls Report Weighs Heavily on US Dollar
The US Dollar came under some pressure on Friday on the back of January’s non-farm payrolls report, which offered fresh evidence of the weakness of the labour market.
As December’s payrolls figure saw a sharp downward revision to -227,000, this left investors with little reason to support USD exchange rates.
The US Dollar came under further pressure as US Treasury yields, which had hit an 11-month high, began to retreat and in turn moved USD exchanges rates lower.
Forecasts of an uptick in the latest Michigan consumer sentiment index could help the USD/GBP regain ground, though, with improved consumer confidence boding well for the wider outlook.
EUR/USD – Signs of German Economic Weakness Fail to Dent Euro
While German factory orders saw a deeper decline on the month than forecast in December, this failed to weigh on the Euro.
Support for the single currency improved in the face of the weaker US Dollar due to the negative correlation in EUR/USD, even as the Eurozone’s powerhouse economy showed fresh signs of softening.
However, fresh commentary from European Central Bank (ECB) policymakers could put some pressure on the Euro in the days ahead.
Any signs of increased anxiety within the central bank, something which could lead to fresh monetary policy action, may encourage investors to sell out of the single currency once again.