US Dollar Rallies on Surging Treasury Yields, Pound Buoyed by Optimism Following UK Budget

GBP/EUR Exchange Rate: Pound Climbs to One-Year High

The Pound to Euro (GBP/EUR) exchange rate struck a one-year high this week, with Sterling able to take advantage of a weakened Euro thanks to rising UK economic optimism.

This comes in the wake of Chancellor Rishi Sunak’s 2021 Budget statement last week, which received a broadly positive response from GBP investors as they welcomed Sunak’s pledge to ‘do whatever it takes’ to support the UK’s economic recovery.

The GBP/EUR exchange rate received another boost at the start of this week’s session following upbeat comments from Bank of England (BoE) Governor Andrew Bailey.

Looking ahead, the main focus for GBP investors through the second half of this week will be the UK’s latest monthly GDP release. January’s figures will reveal just how heavily the latest national lockdown has impacted economic growth, with the Pound likely to face some headwinds if the contraction was deeper than expected.

GBP/USD Exchange Rate: Pound Tempered by Coronavirus Concerns

The GBP/USD exchange rate experienced significant selling pressure through the second half of last week. Much of this was down to the broad-based strength of the US Dollar, but it was accentuated by UK coronavirus concerns.

This came amidst signs that the rate of decline in new coronavirus cases in the UK is beginning to slow, raising concerns that the UK’s reopening plans could face delays if the infection rate remains too high.

This was effectively confirmed by Boris Johnson at the start of this week as he warned that reopening schools is a clear risk for infections and that it could alter the government’s reopening plans.

However in spite of this, the UK’s success with its vaccination programme, with one third of the adult population having now received at least one dose, continues to offer support to the Pound, and is likely to prevent the GBP/USD from falling too much further through the remainder of this week.

USD/GBP Exchange Rate: US Dollar Rallies on Soaring Treasury Yields

The USD/GBP exchange rate trended higher over the past week as the US Dollar has drawn significant strength from soaring US Treasury yields.

The recent surge in yields can be at least partially attributed to Federal Reserve Chair Jerome Powell, whose refusal to use a recent speech to rein them in triggered another jump, which carried USD exchange rates even higher.

This uptick in the US Dollar was reinforced by the latest US payroll figures as February’s release printed well above expectations, with an increase of 379,000.

While the US Dollar has given some ground this week as Treasury yields retreated from a one-year high, the upcoming publication of the US consumer price index could trigger another rally, amid the expectation domestic inflation will have accelerated sharply last month.

EUR/USD Exchange Rate: Euro Undermined by Underwhelming Data

The EUR/USD exchange rate has struggled over the past week, with the pairing stumbling to a four-month low on the back of some disappointing data releases.

The most damaging of these releases for the Euro was the latest Eurozone retail sales figures, which revealed sales growth in the bloc plummeted from 1.8% to –5.9% in January, its worst levels since the bloc’s first full month of lockdown back in April.

The euro then remained on the defensive at the start of this week after data showed a surprise slump in German industrial production at the start of 2021.

Looking ahead, all eyes will be on the European Central Bank (ECB) this week as it concludes its latest policy meeting on Thursday. No policy changes are expected from the bank this month, but its forward guidance and economic outlook could provide some fresh impetus for EUR investors.