GBP firm amid economic optimism, COVID-19 risks remain

Pound Sterling (GBP) is trading higher against its major currency rivals this week, as sentiment over economic outlook continues to improve.

The British pound to US dollar (GBP/USD) exchange rate has dipped slightly to the USD 1.38 level, while the British pound to euro (GBP/EUR) exchange rate is holding steady at EUR 1.16.

Recent headlines indicate the possibility for the UK economy to open up earlier than anticipated. UK Prime Minister, Boris Johnson, stated during his plan to lead the country out of lockdown that non-essential businesses may reopen from 12^th April depending on data. However, with more than 20 million people in the UK now having received the first dose of the coronavirus vaccine, it’s thought that the reopening date could be brought forward.

It’s been highlighted that rapid vaccination programmes should cover at least 35% of the adult population in order to be effective. The UK is likely to reach this target much sooner than other countries, with the percentage currently around 31.4%. Andreas Steno Larsen, analyst at Nordea Markets, states “the UK will soon reach a key threshold in the vaccination process, which will allow for a quicker than anticipated re-opening, The US will soon follow, while continental Europe will lag behind.”

British pound to euro rate rebounds

The British pound to euro (GBP/EUR) exchange rate has reached above EUR 1.16 once again, having taken a dip towards the end of the previous trading week. It is possible to secure these current levels for use in the future with Halo Financial to protect yourself against further volatility.

Pound Sterling (GBP) experienced turbulent trade last December amid evidence of COVID-19 cases spiking across Europe, UK government’s controversial Internal Market Bill and further political fallout in Brexit trade talks.

However, as a result of the Brexit trade deal, the rapid vaccine rollouts and plans to reopen the economy, the UK’s economic outlook has become increasingly positive this year. The British pound (GBP) has also been recognised as one of the best performing currencies in 2021.

However, Europe’s uncertain coronavirus situation is now exerting significant pressure on the euro (EUR), which could begin to fall against pound Sterling (GBP) and other major currencies if cases continue to spike and vaccinations fail to ramp up.

The EU’s slow response to administering vaccines has perhaps been its greatest downfall this year, significantly lagging behind the UK and US, with each country in the Eurozone having vaccinated less than half of what the UK has achieved so far.

It’s been noted that vaccine progress in the UK, places the British pound (GBP) in a strong position as we enter into Q2. However, some economists are of the opinion that the UK Government should remain cautious when it comes to exiting lockdown.

Traders will continue to monitor ongoing global political developments and coronavirus cases this week, which could trigger further volatility in the British pound (GBP), the euro (EUR) and the US dollar (USD). Valentin Marinov, analyst at Crédit Agricole says “we think that the UK government would err on the side of caution with regards to exiting the lockdown, and this much could disappoint the GBP bulls.”

GBP/USD vulnerable following Powell comments

The British pound to US dollar (GBP/USD) exchange rate has fallen today, standing at USD 1.38 level, having soared to USD 1.41 last week. The dip follows yesterday’s comments from Chair of the Federal Reserve, Jerome Powell as he spoke to the Wall Street Journal ahead of the Fed’s next monetary policy meeting on 17^th March.

Mr Powell suggested that the US was facing higher levels of inflation but offered little guidance regarding rising bond yields. Michael Rottmann, Head Fixed Income Strategist at UniCredit Bank stated “Investors were expecting him to talk the yield curve down more explicitly, and when such a message did not come, they started to sell bonds”.

The British pound to US dollar (GBP/USD) currency pairing was provided some support today following better than expected UK construction purchasing managers index (PMI) data. The reading was expected to be 49.2 for February but jumped to 53.3. This growth was welcomed, given the UK’s disappointing services PMI data also released this week.

The US dollar (USD) is also likely to be supported by the release of non-farm payrolls today. January’s data revealed that 49,000 jobs had been added, which was significantly less than the 85,000 that was forecast.

The US’ unemployment crisis, however, appears to be improving as it’s revealed that February saw an increase of 379,000 jobs. This rise is better than expected, as it was anticipated that the increase would be between 185,000 – 200,000 jobs. The jump is one of the largest increases that the Department of Labour has ever recorded. Whilst US jobs remain 10 million below pre-pandemic levels, last month’s growth is undoubtedly a step in the right direction.