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Pound Sterling boosted by easing of UK lockdown restrictions

  • Pound Sterling (GBP) extends gains against most major currencies today
  • British pound to euro (GBP/EUR) exchange rate trading near 13-month highs
  • US dollar (USD) strength continues to weigh on pound Sterling (GBP)
  • New Zealand dollar (NZD) recovers, but lack of economic data out this week could renew selling pressure

Pound Sterling (GBP) has been subjected to volatility recently, and this could become a common trend of the coming days, which could prove frustrating for our clients looking to make a currency exchange.

Not only do we welcome a new trading week and month but a new quarter, which brings along the additional risks of volatile trade for major currencies.

Several analysts have tipped the British pound (GBP) to rise in April, noting that for the past 20 years, the currency has outperformed during the month. However, Western Union Business Solutions Currency Strategist George Vessey warns, “Portfolio rebalancing combined with reduced liquidity could trigger increased volatility in currency markets.”

We have already seen some volatility in the British pound to euro (GBP/EUR) currency pair on Tuesday. After rallying to a 13-month high of EUR 1.1755 at the start of the new trading week, the currency pair has slipped on Tuesday and pared gains.

While GBP bulls are eyeing a strong April, we don’t expect pound Sterling’s (GBP) actual value to showcase itself until Thursday, when the month-end commotion deadens.

However, given that the second phase of easing lockdown restrictions under UK Prime Minister Boris Johnson’s cautious roadmap got underway today, the British pounds (GBP) near-term momentum is looking positive.

Recent UK economic data has also helped put a floor under GBP. Investors are becoming increasingly optimistic about Britain’s recovery outlook, especially with the UK-EU vaccine spat and Brexit-related risks fading into the background.

Confirmation that the UK government secured a deal with GlaxoSmithKline (GSK) for between 50 and 60 million doses of the Novavax covid vaccine should also ensure investors maintain a bullish view on the UK currency, especially in the GBP/EUR cross.

UK COVID cases could prompt third lockdown

UK lockdown easing optimism buoying GBP/EUR

While some risk-averse trade is weighing on the British pound to euro (GBP/EUR) exchange rate heading into the North American session, GBP/EUR continues to trade above the EUR 1.17 level – near monthly highs.

After jumping to EUR 1.1732 earlier during the session, pound Sterling (GBP) is now trading flat against the euro (EUR) at EUR 1.1705.

Concerns about Europe’s third COVID wave washing up on British shores and new variants becoming an issue later in the year have also limited GBP/EUR upside potential today.

However, the UK’s improving recovery outlook, driven by the country’s progressive vaccination programme, should ensure any losses in GBP/EUR are temporary, especially as the Eurozone continues to struggle with its vaccine rollout.

Although the single currency has attempted to claw back from lows, investors have little reason to buy EUR amid weak fundamentals.

While coronavirus cases continue to surge across the euro area, this week saw the next phase of UK PM Boris Johnson’s reopening roadmap plans come into effect, with stay-at-home rules scrapped in favour of the rule-of-six and outdoor sports allowed to resume.

But despite pound Sterling (GBP) being one of the most appealing major currencies of 2021, the UK currency has struggled to advance against a resurgent US dollar (USD), which has dominated in global currency markets.

US Dollar

GBP/USD remains under pressure despite UK economic recovery hopes

2021 was predicted to be a year of declines for the US dollar (USD), which has defied broad-based expectations and surged against a host of rival currencies thus far into the year.

Even growing optimism over the UK recovery outlook has failed to offer the British pound to US dollar (GBP/USD) exchange rate any long-lasting upwards momentum in foreign exchange (FX) markets.

At the time of writing, the British pound to dollar (GBP/USD) pair is trading 0.35% lower at USD 1.3726, and amid current risk-averse trading conditions, selling pressure could be sustained.

Third-wave coronavirus fears are dampening sentiment and driving the greenback higher, while expectations for a robust economic rebound in the US has contributed to USD strength.

However, the British pound (GBP) has managed to hold steady against the safe-haven Japanese yen (JPY), which appears to have weakened against GBP following some disappointing economic data releases out of Japan today.

Currently, the British pound to Japanese yen (GBP/JPY) exchange rate is trading flat at JPY 151.352. However, given that the Tokyo Financial Exchange data revealed that Japan’s retail sales tumbled for the third consecutive month, any significant downside in the currency pair is unlikely.

While the 1.5% decline beat consensus forecasts for a 2.8% drop, investors fear that the Japanese economy will contract in Q1 due to lacklustre consumer spending in the country.

Fears over Japan’s recovery outlook has also boosted the US dollar to Japanese yen (USD/JPY) cross, which has surged by 0.4% to JPY 110.341 heading into New York trading hours.

GBP traders will be eyeing Wednesday’s release of UK Q4 growth data, which, if better-than-expected, could push the UK currency higher above major currencies, including the US dollar (USD).

That said, the shift in risk appetite should ensure pound Sterling (GBP) remains appealing against riskier assets such as the Australian and New Zealand dollars.

GBP/AUD flat, but further gains could be in store

Pound Sterling (GBP) is trading on a softer note against both the Australian dollar (AUD) and New Zealand dollar (NZD) at the time of writing.

While the risk-averse mood is exerting downward pressure on the Kiwi and Aussie dollars, volatile trading conditions prove to be an issue for pound Sterling (GBP).

The British pound to Australian dollar (GBP/AUD) exchange rate is trading flat at AUD 1.803, while the British pound to New Zealand dollar (GBP/NZD) cross is 0.1% lower at NZD 1.9634.

Although both GBP/AUD and GBP/NZD have climbed down from monthly highs, reports revealing that the Australian government is considering reintroducing lockdown restrictions following an outbreak of COVID-19 in Brisbane is weighing on AUD.

While the New Zealand dollar’s (NZD) outlook has improved following last week’s slump, NZD is on track to record losses this month. Support could remain limited over the coming week given this week’s notably light economic calendar.

Furthermore, tomorrow’s ANZ Business Confidence Index reading for March, which is expected to decline, could provide GBP/NZD exchange rates with some upwards momentum.

Reduced risk appetite will also continue to reduce demand for the riskier Australian dollar (AUD) and New Zealand dollar (NZD), albeit any shifts in sentiment could offer the currencies a boost in FX markets.

Nonetheless, with coronavirus cases surging in Europe and other countries reporting upticks in cases, GBP is poised to remain in the driver’s seat against AUD and NZD.

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