British pound exchange rate outlook vs EUR, CAD, USD and AUD

  • British pound to US dollar (GBP/USD) exchange rate and British pound vs euro (GBP/EUR) pair tumble
  • British pound to Canadian dollar (GBP/CAD) exchange rate retreats amid rising fears over UK economic outlook
  • Pound Sterling (GBP) extends advances against the Australian dollar (AUD)
  • FTSE 100 Index slides after a bond rout hit global markets

Pound Sterling (GBP) recorded its first daily loss against the euro (EUR) in a fortnight on Thursday and continues to struggle against the single currency on Friday.

After hitting a high of EUR 1.1704 in mid-week trade, the British pound to euro (GBP/EUR) exchange rate has slumped below the EUR 1.15 level today and is trading at EUR 1.1468 at the time of writing.

Pound Sterling (GBP) weakness is being fuelled by fading enthusiasm over the UK’s economic outlook and a bond rout that has weighed on global investor sentiment.

The British pound vs euro (GBP/EUR) pair has also come under pressure amid growing caution over the GBP rally throughout 2021. The UK currency has defied consensus expectations and recorded record advances against a host of trading rivals; however, overbought conditions have become a cause for concern.

However, FX analysts at Citibank believe that traders have not fully priced in the UK Prime Minister Boris Johnson’s lockdown exit roadmap and maintain their bullish longer-term positioning on GBP.

CitiFX analyst Kurran Tailor said: “The Covid divergence narrative between the UK and Europe has been one reason behind recent GBP outperformance. While the narrative now looks increasingly priced in recent days after PM Boris Johnson unveiled the national reopening plan, there could still be further room to run.”

CitiFX believes GBP/EUR weakness is temporary and expect the currency pair to rally above the EUR 1.19 level in 2021. Analysts from the FX broker have also said there is room for the British pound to euro (GBP/EUR) pair to test the EUR 1.20 level.

Nonetheless, the global market dip is driving risk-off currencies such as the euro (EUR) and US dollar (USD) notably higher against the British pound (GBP) ahead of the weekend.

Impressive Eurozone inflation data is also supporting EUR. Eurostat confirmed that inflation arrived at 0.9% year-on-year in January – the highest level since February 2020.

However, the euro (EUR) has failed to fully capitalise on the declining sentiment amid concerns over the Eurozone recovery outlook and the possibility of further fiscal and monetary policy from the European Central Bank (ECB).

The euro (EUR) is underperforming against all of its safe-haven G10 counterparts, including the US dollar (USD), Japanese yen (JPY) and Swiss franc (CHF).

Although traders anticipate a USD 1.9TN stimulus package and liquidity injection from the Federal Reserve (Fed), the greenback is exerting its dominance in foreign exchange (FX) markets.

While it is customary for the US dollar (USD) to appreciate during risk-off trade conditions, the British pound to US dollar (GBP/USD) exchange rate has recorded sharp losses.

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

British pound vs US dollar exchange rate tumbles from highs

The British pound v US dollar (GBP/USD) exchange rate has erased the majority of this week’s gains and could slide further if the risk-off mood persists.

Cable made a brief recovery above the USD 1.40 level, but losses returned during early trade in the European session, in tandem with a global stock market rout.

After surging to a multi-year high of USD 1.42326 on Wednesday, GBP/USD has plunged by 0.6% at the time of writing to USD 1.3916.

Official data released by the Treasury also revealed that the number of UK employees placed on furlough increased by 700,000 in January, with the third national lockdown cited as the reason for the rise.

More than 11.2 million employees have received furlough payments since the scheme was introduced, costing the Treasury a total of GBP 53.8BN and counting.

While Boris Johnson’s UK lockdown roadmap should allow most businesses to resume operations from April 12th, with nearly 5 million employees still on furlough, more significant labour market challenges could be ahead.

Concerns over the UK’s economic outlook has also dampened pound Sterling’s (GBP) performance against riskier currencies.

Canadian dollar and Australian dollar

GBP/CAD fails to capitalise on risk-off trade

The British pound (GBP) struggles to gain against some of its riskier rivals on Friday, including the commodity-linked Canadian dollar (CAD), which is also benefiting from rising oil prices.

Oil prices hit a fresh one-year high this week as global vaccine rollouts and declining COVID-19 cases have allowed countries to ease restrictions on social activity.

While investors welcomed PM Boris Johnson’s lockdown exit roadmap for the UK, concerns over the country’s recovery outlook and weak domestic fundamentals weigh on pound Sterling (GBP) in forex markets.

Analysts from Credit Agricole said that GBP places last in their G10 ranking of FX fundamentals as the UK’s suffered a more severe economic downturn than its peers; a ballooning current account deficit and relatively low yields, to name a few.

Meanwhile, the strong performance in oil markets is fuelling confidence in the Canadian economy. The British pound to Canadian dollar (GBP/CAD) exchange rate is trading 0.3% lower at CAD 1.7615.

The Bank of Canada (BoC) also delivered a markedly positive statement over Canada’s recovery prospects during its latest monetary policy meeting, which has helped drive the “Loonie” higher.

Although the UK’s lead in the race to immunisation could drive GBP/CAD higher, GBP could lose its advantage in the long-term as covid vaccine euphoria is expected to fade as the pace of vaccination picks up in other countries.

However, the predicted consumer spending boom could limit any sharp losses in pound Sterling (GBP) exchange rates as this would likely restore confidence in the UK economy.

GBP/AUD outperforming in currency markets

The British pound to Australian dollar (GBP/AUD) exchange rate has fluctuated this week due to a combination of risk-on movement, hopes for a swift UK economic rebound and dovish comments from the Reserve Bank of Australia (RBA).

While fears over the UK’s recovery outlook have re-emerged, the RBA statement and a stronger US dollar (USD) is weighing on the “Aussie” dollar on Friday.

GBP/AUD has surged by 0.8% ahead of the weekend to AUD 1.7974 – a fresh weekly high and could continue to climb if investors continue to seek safe-haven currencies.

However, given that the Biden administration is preparing to launch a USD 1.9TN stimulus package for the US economy, the Australian dollar (AUD) could reverse its fortunes.

That being said, Fed Chair Jerome Powell’s more neutral stance on the need for US fiscal support could ensure AUD continues to struggle in the near-term.

Rising bond yields appear to have spooked investors as the FTSE 100 Index, which was rebounding from this morning’s sell-off, has declined again during London trading hours.

London’s blue-chip FTSE 100 Index plummeted to 6,573.31 minutes after opening but rapidly recovered within a few hours. However, the FTSE 100 has slipped further into the red territory at 13:00 GMT and is down by −97.21 points or 1.46% at 6,554.75.

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