The Pound has rocketed this week, with the UK currency finding considerable support from the Bank of England’s (BoE) lack of appetite for negative interest rates.
At the same time, the US Dollar has mounted a recovery, aided by US President-Elect Joe Biden’s announcement of an ambitious stimulus package.
Pound Strengthens as BoE Dismisses Negative Rates
GBP/EUR – Up one cent on the week’s opening levels
GBP/USD – Up one cent on the week’s opening levels
The Pound enjoyed notable support through the past week, driven mostly by comments from Bank of England (BoE) Governor Andrew Bailey, in which he downplayed speculation the BoE could slash interest rates below zero.
However, UK coronavirus developments infused some volatility into Sterling particularly amidst fears the government could impose stricter restrictions.
Looking ahead, the publication of the UK’s latest PMI estimates are likely to be the focus for GBP investors next week, as they will give some idea of how much the latest lockdown measures have hit economic activity.
Euro Stumbles as Germany Likely to Extend Lockdown
EUR/GBP – Down two pence on the week’s opening levels
EUR/USD – Down one cent on the week’s opening levels
The Euro found itself on the defensive this week following the news that Germany is likely to extend its current national lockdown into April to prevent a 10-fold increase in infections.
Applying additional pressure to the single currency were the minutes from the European Central Bank’s (ECB) December policy meeting, in which members of the Governing Council expressed concern over the recent strength of EUR exchange rates.
Turning to next week’s session, the focus for EUR investors looks to be on the ECB’s first policy meeting of 2021, where a reaffirmation of its FX concerns could drive the Euro even lower.
US Dollar Buoyed by Biden’s Stimulus Plans
USD/GBP – Unchanged on the week’s opening levels
USD/EUR – Up one cent on the week’s opening levels
The US Dollar was spurred higher this week, bolstered in part by President-elect Joe Biden’s announcement that he will pursue a stimulus package worth $1.9 trillion once in office.
This built on gains made earlier in the week when a slump in equity markets sent investors flocking to the safe-haven ‘Greenback’.
Coming up next week, the spotlight for USD investors is likely to be the inauguration of Biden, with traders eager to see what policies he will prioritise in his first days in office.
Australian Dollar Undermined by USD Strength
AUD/GBP – Down one pence on the week’s opening levels
AUD/USD – Unchanged on the week’s opening levels
The Australian Dollar faltered at the start of this week as a souring of market risk appetite put significant pressure on the risk-sensitive ‘Aussie’.
While the Australian Dollar was able to claw back some of its losses later in the week as the mood improved, this rebound was capped by the strength of the US Dollar.
Turning to next week, the spotlight for AUD investors will undoubtedly be on Australia’s latest jobs report, with a potential rise in unemployment in December likely to drag on the ‘Aussie’.
Jan 20 GBP Inflation Rate (Dec)
Jan 20 USD Biden’s Inauguration
Jan 20 AUD Consumer Confidence (Jan)
Jan 21 AUD Unemployment Rate (Dec)
Jan 21 EUR ECB Rate Decision
Jan 21 USD Initial Jobless Claims (16/Jan)
Jan 22 AUD Retail Sales (Dec)
Jan 22 EUR Manufacturing PMI (Jan)
Jan 22 EUR Services PMI (Jan)
Jan 22 GBP Manufacturing PMI (Jan)
Jan 22 GBP Services PMI (Jan)
Jan 22 USD Existing Home Sales (Dec)