The Pound plummeted this week as a new lockdown in England stoked concerns over the UK’s growth prospects in the first quarter of 2021.
At the same time, the hopes for more US fiscal stimulus helped to bolster market sentiment this week, leading to additional losses for the safe-haven US Dollar.
Pound Tumbles Following Lockdown Announcement
GBP/EUR – Down one cent on the week’s opening levels
GBP/USD – Down one cent on the week’s opening levels
The Pound got off to a poor start during the first week of trade in 2021 as a worrying surge in UK coronavirus cases prompted the government to impose a strict new lockdown in England.
Concerns over the potential economic fallout from the lockdown ensured that Sterling remained on the defensive through most of the week.
Looking ahead, next week will see the publication of the UK’s latest month GDP figures. In light of the UK’s second lockdown, November’s release is expected to report a slump in growth, keeping the pressure on Sterling.
Euro Rallies on USD Weakness
EUR/GBP – Up one pence on the week’s opening levels
EUR/USD – Up one cent on the week’s opening levels
The Euro’s recent bullish run remained firmly in place through the first half of this week, with the EUR/USD exchange touching a new 32-month high as the single currency benefitted from broad weakness in the US Dollar.
However, the single currency struggled to hold on to its gains in the latter half of the week in response to some lacklustre EUR data releases.
Turning to next week’s session, the focus for EUR investors will likely be on Germany’s budget announcement as well as the accompanying 2020 GDP figures. EUR investors will be looking to Germany’s government to up its fiscal spending in 2021 to help support the Eurozone’s economic recovery.
US Dollar Undermined by Stimulus Hopes
USD/GBP – Unchanged on the week’s opening levels
USD/EUR – Down one cent on the week’s opening levels
The US Dollar spent much of this week on the back foot. Demand for the safe-haven currency was limited as market sentiment was cheered by the prospect of greater US fiscal stimulus due to the Democrats taking control of the Senate.
A jump in US bond yields allowed the ‘Greenback’ to then recoup some of these losses later in the session.
Coming up next week, the spotlight for USD investors looks to be on the latest US inflation figures, where a muted reading could stoke expectations for more monetary stimulus from the Federal Reserve.
Australian Dollar Strengthens 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, riding the risk-on tone which prevailed amidst hopes for more fiscal stimulus in the US.
This was temporarily able to carry the AUD/USD exchange rate to a new multi-year high before the rebound in the US Dollar and some disappointing Australian trade figures undermined the ‘Aussie’s gains in the second half of the week.
Turning to next week, the only release of note to AUD investors will be Australia’s retail sales figures, with November’s finalised figures set to confirm a sharp rebound in sales growth.
Jan 11 AUD Retail Sales (Nov)
Jan 12 GBP BoE Broadbent Speech
Jan 13 EUR Industrial Production (Nov)
Jan 13 EUR German Budget
Jan 13 EUR German GDP (2020)
Jan 13 USD Inflation Rate (Dec)
Jan 15 GBP GDP (Nov)
Jan 15 GBP Industrial Production (Nov)
Jan 15 USD Retail Sales (Dec)
Jan 15 USD Consumer Sentiment (Jan)