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Monthly Wrap: GBP – UK reopening hopes propel the pound to multi-month highs

currency-newsMonthly Wrap: GBP – UK reopening hopes propel the pound to multi-month highs
Key takeaways:

-              Pound bolstered by UK’s vaccination drive.
-              Profit taking sees Sterling retreat from its best levels.     
-              GBP Monthly lows: €1.13, $1.35, AU$1.76, NZ$1.88, C$1.73
-              GBP Monthly highs: €1.16, $1.42, AU$1.81, NZ$1.94, C$1.78
The pound spent most of February on the front foot, with the currency enjoying a protracted bullish run amidst growing UK economic optimism.

This was underpinned by the UK’s enviable success with its vaccination programme as well as a sustained drop in coronavirus infections, which has spurred hopes that this will allow the UK to be the first major economy to completely reopen.

Boris Johnson appeared to confirm as much as he unveiled his roadmap for easing lockdown measures in the UK, which while more cautious than some GBP investors had hopes, held the promise of lifting all restrictions by the summer.

Adding to Sterling’s momentum at the start of February was the Bank of England’s (BoE) first policy decision of 2021, in which it hinted that negative interest rates are highly unlikely to be deployed by the bank during the current cycle of monetary easing.

The UK's latest GDP figures were also supportive of Sterling last month as they reported a surprisingly strong expansion of domestic growth in the last quarter of 2020.

However, the pound then faltered at the end of February as its heady rise gave way to some profit taking in end of month trade.

So far in March we have seen the pound mostly rangebound, with the GBP/USD exchange rate stuck trading below a key level of resistance despite garnering some support from Chancellor Rishi Sunak’s budget statement.

While GBP investors welcomed the Chancellor’s pledge to do ‘whatever it takes’ to support the UK’s economic recovery, they were less enthused by Sunak’s plans to raise corporation tax to 25% from 2023.

Looking to the remainder of March, the main focus for GBP investors will be on the UK’s coronavirus statistics as Boris Johnson’s easing plans hinge on infection rates continuing to fall.

Also likely to influence Sterling this month will be the BoE’s latest policy meeting, with GBP investors eager to see how the government’s reopening plans will impact the bank’s economic outlook for 2021.
Philip McHugh

Philip McHugh

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)

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