Pound Sterling

Weekly Update: Pound Fluctuates amidst Record Slump in GDP, US Dollar Stumbles as Treasury Yields Drop

The Pound fluctuated through this week’s session as vaccination optimism was met by the news of a record slump in UK economic growth in 2020.

At the same time, the US Dollar has faced a persistent sell-off over the past week as the currency was undermined by falling US Treasury yields and a risk-on mood.

Pound Mixed as UK Suffers Record Slump in Growth in 2020

GBP/EUR – Unchanged on the week’s opening levels

GBP/USD – Up one cent on the week’s opening levels

The Pound traded in a wide range over the past week, initially finding support through the first half of the week amidst the UK’s ongoing success with its vaccination rollout.

However, Sterling sentiment then faltered in the latter half of the week amidst some renewed Brexit concerns and the UK’s latest GDP figures, which while reporting a stronger-than-expected expansion at the end of last year, also revealed a record slump in annualised growth.

Turning to next week, the Pound could face some headwinds with the publication of the UK’s latest PMI figures, where another sizable contraction in private sector growth this month will likely reflect poorly on GBP exchange rates.

Euro Bolstered by USD Weakness

EUR/GBP – Unchanged on the week’s opening levels

EUR/USD – Up one cent on the week’s opening levels

The Euro’s negative correlation with the US Dollar offered some support to the single currency this week as the US currency faltered.

However, these gains were tempered by the news that Germany will be extending its lockdown in March, as well as the EU’s ongoing vaccination debacle.

Looking ahead to next week, the Euro may come under pressure with the release of the Eurozone’s latest PMI figures, which are likely to report economic activity in the bloc continued to contract this month.

US Dollar Slumps as Treasury Yields Fall

USD/GBP – Unchanged on the week’s opening levels

USD/EUR – Down one cent on the week’s opening levels

The US Dollar experienced a clear selling bias this week, with the currency falling in step with a drop in US Treasury yields.

This came on the back of some lacklustre inflation figures as well as concerns that Joe Biden’s stimulus package could face delays due to disagreements amongst Democrats over the eligibility of relief checks.

Coming up next week, the publication of the latest US retail sales figures could help the US Dollar to recoup some of its losses, amidst forecasts sales growth will have rebounded in January.

Australian Dollar Firms in Risk-On Trade

AUD/GBP – Up one pence on the week’s opening levels

AUD/USD – Up one cent on the week’s opening levels

The Australian Dollar struck higher this week, with the appeal of the risk-sensitive currency being boosted amidst an upbeat market mood.

The positive sentiment was driven by hopes for US stimulus as well as a positive phone call between US President Joe Biden and his Chinese counterpart, Xi Jinping.

Looking ahead, the publication of Australia’s jobs report will be the main focus for AUD investors next week, with another dip in the unemployment rate potentially helping to buoy the Australian Dollar.

Key Data

Feb 16 AUD RBA Minutes

Feb 16 EUR GDP (Q4)

Feb 17 GBP Inflation Rate (Jan)

Feb 17 USD Retail Sales (Jan)

Feb 17 USD Industrial Production (Jan)

Feb 17 USD FOMC Minutes

Feb 18 AUD Unemployment Rate (Jan)

Feb 19 AUD Retail Sales (Jan)

Feb 19 EUR Manufacturing PMI (Feb)

Feb 19 EUR Services PMI (Feb)

Feb 19 GBP Manufacturing PMI (Feb)

Feb 19 GBP Services PMI (Feb)