The US dollar strengthened on Thursday as USD investors cheered the release of some stronger-than-expected US economic releases.
- Pound bolstered by Brexit deal.
- Strict new lockdown dampens Sterling sentiment at the start of 2021.
- GBP Monthly lows: €1.10, $1.34, AU$1.74, NZ$1.86, C$1.71
- GBP Monthly highs: €1.12, $1.36, AU$1.79, NZ$1.90, C$1.74
The pound has trended broadly higher over the past month, after the announcement that the UK and EU had finally signed a Brexit trade deal on Christmas Eve triggered a relief rally.
This allowed the pound to close 2020 on a positive note, with the GBP/USD exchange rate even managing to strike a new two-year high in the process.
However, in the run-up to the announcement, we witnessed some significant volatility in GBP exchange rates as a result of both uncertainty on whether a deal would actually be agreed, as well as the news that a new more-infectious strain of the coronavirus was rapidly spreading through the UK.
GBP investors were particularly spooked by France’s decision to place a 48 hour ban on all freight coming from the UK in an effort to prevent the mutated strain from spreading to the continent.
The pound then came under renewed pressure at the start of 2021 as a worrying surge in domestic coronavirus cases forced Boris Johnson to impose a strict new lockdown in England.
The lockdown is expected to last until at least mid-February and will undoubtedly result in a contraction of economic growth in the first quarter.
However, efforts by the Bank of England (BoE) to downplay negative interest rates speculation has extended some support to Sterling over the past couple of weeks.
Looking ahead, to the remainder of January and beyond, it's likely that UK coronavirus developments will remain the key concern for GBP investors going forward.
While there are signs that cases have begun to plateau in some areas, there is still a considerable threat of the government tightening restrictions amidst concerns that its advice to stay home is not always being followed correctly.
The lifting of the lockdown will also depend on the success of the government’s ambitious vaccination programme, with Johnson having previously warned it could stretch into March if not enough people receive the jab.
GBP investors will also be keeping a close eye on the BoE’s first policy meeting of 2021. While negative rates may be off the table, the bank may decide to expand its stimulus programme in an effort to support the UK economy through the latest lockdown.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)