Pound Sterling

Weekly Update: Pound Soars on UK Economic Optimism, US Dollar Rocked by Fluctuating Treasury Yields

The Pound made convincing gains this week, with Sterling sentiment being turbocharged by hopes a swift reopening of the economy will see UK GDP rebound sharply in 2021.

At the same time, the US Dollar traded in a wide range as the currency remained anchored to US Treasury yields, which jumped to a one-year high before faltering.

Pound Bolstered by Vaccine Optimism

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

GBP/USD – Up two cents on the week’s opening levels

The Pound trended higher again this week, as UK vaccination success and a marked improvement in coronavirus statistics bolstered hopes for a strong rebound in the economy this year.

Aiding the Pound’s ascent this week was also the news that Chancellor Rishi Sunak will defer plans for tax increases in next month’s Budget in favour of more fiscal support for the UK’s economic recovery.

In the spotlight next week, we have the publication of Boris Johnson’s long-awaited roadmap of how and when the government will lift the UK lockdown. Expect the Pound to weaken if GBP investors feel the pace of easing is too slow.

Euro Gains on 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 saw the single currency fluctuate through much of this week’s session amid some swings in USD exchange rates

However, the Euro ultimately ended the week higher, underpinned by some stronger-than-expected economic releases, which helped to offset ongoing concerns over the EU’s slow coronavirus vaccine rollout.

Looking ahead to next week, Germany’s final GDP release may offer some support to the Euro if it confirms the Eurozone’s largest economy managed to avoid a contraction in the last quarter of 2020.

US Dollar Mixed amid Fluctuating Treasury Yields

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

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

The US Dollar traded in a wide range this week as the currency continued to trade in line with fluctuating US Treasury yields.

This resulted in the ‘Greenback’ rallying on the back of impressive US retail sales figures during the first half of the week, before coming crashing back to earth in the latter half after US jobless claims saw another disappointing rise.

The direction of US Treasury yields is likely to remain a key concern for USD investors next week, as is the latest durable goods figures, where a strong pick up in goods orders last month could help to buoy the US Dollar.

Australian Dollar Bolstered by Upbeat Jobs Report

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

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

The Australian Dollar initially got off to a strong start this week, before quickly giving back most of these gains as a rebound in the US Dollar tempered demand for the high-yield currency.

However, AUD exchange rates were given another leg up in the latter half of the session following a larger-than-expected fall in domestic unemployment last month.

The publication of Australia’s latest wage price index will likely be the main focus for AUD investors next week, with another slowing of wage growth in the fourth quarter potentially dampening the appeal of the ‘Aussie’.

Key Data

Feb 22 GBP Boris Johnson’s Lockdown Roadmap

Feb 23 GBP Unemployment Rate (Dec)

Feb 23 GBP Wage Growth (Dec)

Feb 23 EUR Inflation Rate (Jan)

Feb 24 AUD Wage Price Index (Q4)

Feb 24 EUR German GDP (Q4)

Feb 25 AUD Business Confidence (Feb)

Feb 25 EUR Economic Sentiment (Feb)

Feb 25 USD Durable Goods Orders (Jan)

Feb 26 USD PCE Price Index (Jan)