GBP/USD briefly passes $1.37 on UK economic optimism

Philip McHugh January 22nd 2021 - 2 minute read

The pound made fleeting gains on Thursday, driven by hopes for a solid economic rebound in the UK this year.
Meanwhile, Sterling is already giving ground again this morning on the back of lacklustre retail sales, with GBP/EUR sliding to €1.1234 and GBP/USD retreating to $1.3664. GBP/CAD is subdued at C$1.7332, while GBP/AUD and GBP/NZD hold steady at AU$1.7677 and NZ$1.9021, respectively.
Looking ahead, the spotlight today looks to be on the latest UK and Eurozone PMI releases, with expectations for a downbeat reading for both likely to put some pressure on GBP and EUR exchange rates.

What’s been happening?

The pound initially rocketed higher yesterday, with GBP/USD smashing past $1.37 on hopes that the UK’s impressive vaccination programme will allow a strong economic recovery this year.
However, Sterling sentiment soured later in the session as these hopes were dampened by comments from Boris Johnson, who suggested that it is ‘too early’ to discuss when the lockdown can start to be eased, whilst also refusing to rule out that it may continue into the summer.
The euro, meanwhile, posted some modest gains on Thursday in the wake of some mixed forward guidance from the European Central Bank (ECB).
Following its first policy meeting of 2021, in which it opted to leave interest rates on hold, ECB President Christine Lagarde struck a broadly positive tone in her outlook for the coming year, but cautioned this with warnings that the strength of EUR exchange rates is impacting inflation.
Finally, we saw the US dollar remain mostly on the back foot yesterday as the ‘Biden bounce’ continued to undermine safe-haven demand, but with its losses being capped as concerns over high jobless claims weighed on market sentiment somewhat.

What’s coming up?

Turning to today’s session, the focus this morning looks to be on the latest PMI figures from the Eurozone and UK.
First up will be the Eurozone release, which is forecast to report activity in the bloc’s private sector contracted for the fifth consecutive month in January, potentially putting some pressure on the euro this morning.
The UK figures are also expected to report that economic activity slumped last month, but at a faster pace than in the Eurozone, reflecting the stricter lockdown measures in place across the UK. As a result, we are likely to see the pound face some hurdles in early trade.
Meanwhile, it's likely that USD exchange rates will remain sensitive to market sentiment today, possibly rallying amidst a souring of market sentiment.

Written by
Philip McHugh

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