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Pound Sterling Expected To Recover From Brexit Anxieties

The British pound (GBP) appears to be recovering from its post-Brexit losses against a host of major currencies following a more optimistic outlook for the UK economy as a result of coronavirus vaccine developments.

Today has seen the British pound (GBP) reach a 9-month high against the euro (EUR) with the British pound to euro (GBP/EUR) exchange rate standing at EUR 1.13.

The Bank of England (BoE) governor, Andrew Bailey, recently forecast that the UK would see a sharp economic recovery following positive coronavirus vaccine progressions. “I really think that we are going to see a pronounced recovery in the economy as the vaccination programme, as it is doing now, rolls out,” he said.

The BoE will release new growth forecasts for the UK economy in early February along with a separate report to assess the possibility of cutting interest rates below zero in a bid to boost UK economic growth.

The British pound (GBP) was hard hit last year amid Brexit woes, after London proposed legislation that would override areas of the Withdrawal Agreement. The action caused relations between the EU and UK to deteriorate, sparking fears of a no-deal Brexit. Pound Sterling (GBP) bore the brunt of the move seeing the British pound to euro (GBP/EUR) exchange rate close in on a 4% low compared to the previous week, while the British pound to US dollar (GBP/USD) exchange rate plunged by 3.62%.

Brexit anxieties also saw the British pound (GBP) shed ground to riskier rivals, as Pound sterling to Australian dollar (GBP/AUD) slipped to year-and-a-half lows, while the British pound to New Zealand dollar (GBP/NZD) exchange rate slumped to a month-and-a-half worst.

US Dollar and Sterling- banknotes and coin. GBP-USD concept

Pound Sterling Gains Ground Over Us Dollar

The British pound (GBP) has always remained sensitive to US political events and today re-affirms this tendency. With the recent inauguration of President Joe Biden, the market sentiment appears more optimistic following Biden’s stimulus plans to inject USD 1.9tn into the US economy in a bid to save the US COVID-19 ravaged economy.

Pledges from the Biden administration provided a boost to the British pound (GBP), with the British pound to US dollar (GBP/USD) exchange rate currently standing at USD 1.37. The British pound’s (GBP) latest movements against its key competitors are indications that Sterling is slowly shifting from being dominated by Brexit.

It’s promising that Sterling is being supported by US developments, as it’s hoped that the continued correlation will hold up and contribute to a strong global recovery.

President Biden’s stimulus package is yet to be passed by congress and, whilst it’s hoped that the proposal will pass in full, any amendments could disappoint markets and cause a fall in the British pound (GBP).

COVID vaccine rollout

Renewed Vaccine Hopes Boost Pound Sterling Exchange Rates

Concerns over rising COVID-19 cases have been alleviated recently, with the UK now vaccinating citizens at an impressive rate. It’s been confirmed that the UK has administered over 6.8 million doses of the coronavirus vaccine so far, with 469,660 people already having received their second dose.

Presently, the UK has rolled out both the Pfizer and Oxford-AstraZeneca vaccine, with the Moderna vaccine said to be rolled out in the spring. The UK is on track to its target of vaccinating 15 million people within the next six weeks.

The news has buoyed risk sentiment and acted as the catalyst for upside in pound Sterling (GBP), which is currently rallying against its risk-off and risk-on counterparts.

While high-beta currencies such as the New Zealand dollar (NZD) and Australian dollar (AUD) have extended gains against the US dollar (USD), the British pound (GBP) is challenging its G10 rivals.

On the whole, trading seems to have been boosted by improvements within British pound (GBP) sentiment, with the Sterling reaching a major level against the euro (EUR) as the UK rolls out vaccines at a rapid rate. Furthermore, the post-Brexit picture appears to be becoming clearer as we approach a full month after the Brexit transition period.

For now, it seems as though Brexit related issues are taking a backseat when it comes to drivers for the British pound (GBP) with its course is likely to be dictated by COVID-19 for the foreseeable future.

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