Pound Sterling continues to advance against major currencies

The British pound (GBP) has edged higher advancing against some of its major trading currency rivals this week as investors continue to favour Sterling over the weaker US dollar (USD) and seemingly overvalued euro (EUR).

At the time of writing, the British pound to euro (GBP/EUR) exchange rate has surged to a 9-month high of EUR 1.14, while the British pound to US dollar (GBP/USD) exchange rate is currently trading at USD 1.37.

Gains in the British pound to euro (GBP/EUR) exchange rate largely comes down to the UK’s rapid response to deploying COVID-19 vaccines in comparison to the EU’s slow developments. Ned Rumpeltin, European Head of FX Strategy at TD Securities stated “the UK continues to outperform on its vaccine rollout. We may also be seeing some optimism after the EU was forced to back down from some export restrictions over the weekend amid ongoing problems with distribution in the region.”

Foreign exchange (FX) markets have become increasingly more positive over the UK’s economic recovery outlook following the UK’s impressive rapid vaccination rates. It’s been reported that the UK has now administered 9.3 million first doses of the vaccine as AstraZeneca predicted that the country could reach 30 million total vaccinations by March.

UK services Purchasing Managers Index (PMI) for December 2020 also proved to be less severe than anticipated, rising to 49.9 from 47.6 in November. It was expected that December would see a significant decline in economic activity as a result of the second national UK lockdown in November.

Despite a slight increase in economic activity in December, the beginning of 2021 is likely to show much slower recovery due to the UK’s third national lockdown, which is expected to continue until March.

What is promising about the direction of the British pound (GBP), however, is that Brexit no longer appears to be a primary driver for Sterling, instead with the focus now heavily reliant on coronavirus vaccine developments.

GBP/NZD range bound amid vaccine hopes

Pound Sterling (GBP) is holding steady against the New Zealand dollar (NZD) during midweek trade, courtesy of broad-based optimism regarding COVID-19 vaccine developments and the continued rapid rollout within the UK.

The British pound to New Zealand dollar (GBP/NZD) exchange rate has maintained progressions around NZD 1.91 but is currently struggling to break above this resistance level.

Sentiment is strengthening for the kiwi currency this week as recent losses in the Australian dollar (AUD) have pushed the New Zealand dollar (NZD) higher. The Reserve Bank of Australia (RBA) has taken a more dovish outlook for the Australian economy, which has benefited its New Zealand rival.

If the global COVID-19 situation deteriorates further and stock markets continue to struggle, we expect GBP/NZD will keep its bullish trend intact as this will intensify the pressure on commodities and assets.

While New Zealand is almost free from COVID-19, the New Zealand dollar’s (NZD) recent underperformance against the British pound (GBP) reminds all of how sensitive the currency is to the global picture.

The Reserve Bank of New Zealand (RBNZ) has forecast that the New Zealand dollar (NZD) will continue to be a top performer amongst major currencies in the long term, following its strong economic recovery and low, competitive interest rates.

The New Zealand dollar will be focussed on  New Zealand’s job market report for Q4 2020 as any positive data will provide a further boost for the kiwi currency.

GBP/SEK Soars following weak Swedish PMI data

The British pound to Swedish krona (GBP/SEK) exchange rate has climbed higher this week at SEK 11.39 following disappointing Swedish PMI data. Flash Swedish manufacturing PMI for January was anticipated to reach 65 but instead fell to 62.4.

Sweden has also been struggling with rapidly rising cases of COVID-19 over recent weeks. Initially, Sweden took a very relaxed approach to the virus and experienced a few cases and deaths in comparison to its European neighbours. However, daily cases reached 17,395 in January, compared to a low of 38 in August.

Anders Tegnell, Swedish Civil Servant, initially said Sweden would not force its citizens to wear face masks, which goes against the World Health Organisation’s (WHO) advice. However, December saw the country make it mandatory to wear masks on public transport.

While Sweden suggests its more relaxed approach will result in herd immunity, there are still significant uncertainties about what kind of viral resistance is generated when people recover from COVID-19.

Swedish consumers are becoming more cautious about pursuing out-of-home activities given the rise of infections.

Elizabeth Crofoot, Senior Economist at The Conference Board, said: “Without substantial public trust in governments to mitigate the risk of second-wave outbreaks, consumer confidence will remain depressed over the coming months.” In that view, currency markets may keep a lid on any bouts of strength in the Swedish krona (SEK) for the near future.

GBP/ZAR fluctuating in the midweek session

The South African rand (ZAR) has continued to edge higher against pound Sterling (GBP) during early trade on Tuesday.

At the time of writing, the British pound to South African rand (GBP/ZAR) exchange rate is trading lower at ZAR 20.48 as the rand (ZAR) is benefiting from South Africa’s approval of the AstraZeneca vaccine.

The South African rand (ZAR) has also been given a boost as the International Monetary Fund (IMF) upgraded its 2021 global growth forecast.

ZAR investors will be looking towards the arrival of the first doses of the AstraZeneca vaccine this week with sentiment buoyed by the continuation of positive headlines.