US Dollar Stumbles on Dovish Powell Comments, Pound Firms as the UK Reopens

GBP/EUR Exchange Rate: Pound Finds Temporary Gains as UK Economy Begins to Reopen 

After stumbling through the second half of last week’s session, the Pound to Euro (GBP/EUR) exchange rate was able to get off to a strong start this week, with the pairing surging roughly half a cent as the UK government continued to lift lockdown restrictions.

The latest stage of easing included the reopening of a large swath of the UK economy, with non-essential retail, hairdressers, gyms and outdoor pubs all allowed to open up to customers and spurring hopes for a strong UK economic recovery this year. 

However, the uptick in GBP/EUR proved short lived, with some of Sterling’s lustre fading as the latest UK GDP figures printed slightly below expectations and GBP investors expressed concerns about potential disruption to the UK’s vaccination programme.

Looking ahead, the next week will include some notable GBP data releases, with the Pound potentially able to mount a more robust recovery if the UK’s latest employment and inflation figures print positively. 

GBP/USD Exchange Rate: Sterling’s Gains to be Capped by Political Concerns? 

The GBP/USD exchange rate has sought to mount a recovery this week, with the pairing bouncing back from a two-month low as GBP investors welcomed the reopening of a large part of the UK economy. 

However, these gains have been tempered somewhat by renewed Brexit concerns, as ‘significant differences’ remain between the UK and EU in talks over the Northern Ireland protocol.

Looking a little further ahead, markets are likely to grow increasingly sensitive to Scottish political developments in the lead up to next month’s parliamentary election, as a strong showing by the Scottish National Party could cast doubts over the strength of the union.

USD/GBP Exchange Rate: US Dollar Dented by Dovish Fed 

The USD/GBP exchange rate has ticked lower over the past week, following a number of appearances by Federal Reserve Chair Jerome Powell in which he reinforced the central bank’s current dovish bias. 

Powell has sought to play down concerns about rapidly rising inflation, suggesting that Fed will want to see it moderately above 2% for some time, whilst also repeatedly reiterating the bank’s commitment to maintain its ultra-accommodative monetary policy. 

Applying additional pressure to the US Dollar has also been a recent pullback in US Treasury yields, following consecutive successful 30-year bond auctions at the start of this week’s session. 

Still to come this week is the latest US retail sales release, in which an expected strong rebound in domestic sales growth could help the US Dollar to recoup some of its recent losses. 

EUR/USD Exchange Rate: Euro Buoyed by USD Weakness 

The EUR/USD exchange rate has made steady gains over the past week, with the pairing striking a new one-month high and nearing a key barrier of resistance.

This uptick in the Euro has been in large part due to the drop in the US Dollar, with the negative correlation in the pairing spurring the single currency higher. 

Also supportive of EUR exchange rates are signs that Europe’s vaccine rollout is beginning to accelerate, as well as some stronger-than-expected Eurozone retail sales figures.

Looking ahead, the focus is likely to turn back to Europe’s coronavirus situation, with the Euro potentially finding additional support if the third wave of infections is seen as having peaked.