Weekly Update: Pound Fluctuates on UK Economic Optimism, US Dollar Undermined by Biden Bounce

The Pound found some short-lived gains this week as the UK’s aggressive vaccination programme bolstered hopes for a strong economic rebound this year.

At the same time, the US Dollar came under pressure this week as market sentiment was buoyed by Joe Biden taking office and immediately setting to work on tackling the coronavirus crisis in the US.

Pound Finds Fleeting Gains amid Vaccination Optimism

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

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

The Pound struck higher through the first half of this week, underpinned by the UK’s aggressive coronavirus vaccination programme, which buoyed hopes the UK will soon emerge from the other side of the pandemic.

However, Sterling subsequently relinquished a large portion of these gains after Boris Johnson warned that it is ‘too early’ to begin discussing the easing of lockdown measures, with some lacklustre UK data releases putting further pressure on GBP exchange rates.

Looking ahead, the Pound could face some additional headwinds at the start of next week as the UK’s latest job figures may report a rise in domestic unemployment.

Euro Fluctuates as ECB Remains Wary of EUR Strength

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

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

The Euro struggled through the first half of this week, as political uncertainty in Italy took its toll on the single currency.

However the single currency was able to rally in the second half of the session after the European Central Bank (ECB) gave an optimistic economic outlook for 2021, despite continuing to express concern over the strength of the Euro.

Looking ahead to next week, the focus for EUR investors will be on a slew of German economic releases, most notably Germany’s latest GDP release, which is expected to report a contraction of growth in the fourth quarter.

US Dollar Weakens as Biden Bounce Cheers Markets

USD/GBP – Down one pence the week’s opening levels

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

The US Dollar fell back this week as demand for the safe-haven currency was undermined by a prevailing risk-on tone.

This came on hopes newly-elected US President Joe Biden will push through a major stimulus package and implement measures to help tackle soaring US coronavirus statistics.

Coming up next week, the focus for USD investors will be split between the Federal Reserve’s first policy meeting of 2021 as well as the latest US GDP figures, where a positive reading could help to cheer markets.

Australian Dollar Bolstered by Risk-On Trade

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

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

The Australian Dollar firmed this week, as the prevailing risk-on tone bolstered the appeal of the high-yield ‘Aussie’.

Further bolstering AUD exchange rates was the publication of Australia’s latest jobs report, with AUD investors hailing a larger-than-expected drop in the jobless rate as a sign that unemployment may have peaked.

Turning to next week, the publication of Australia’s latest CPI figures are likely to be the main focus for AUD investors, with a strengthening of inflation in the fourth quarter potentially offering support to the ‘Aussie’.

Key Data

Jan 25 EUR German Business Confidence (Jan)

Jan 26 GBP Unemployment Rate (Nov)

Jan 26 GBP Wage Growth (Nov)

Jan 26 GBP CBI Distributive Trades (Jan)

Jan 27 AUD Business Confidence (Dec)

Jan 27 AUD Inflation Rate (Q4)

Jan 27 USD Durable Goods Orders (Dec)

Jan 27 USD Fed Rate Decision

Jan 28 EUR German Inflation Rate (Jan)

Jan 28 USD GDP (Q4)

Jan 29 EUR German GDP (Q4)