GBP/USD rebounds above $1.37 on reversal in risk flows

Philip McHugh January 29th 2021 - 2 minute read

The US dollar squandered its initial gains on Thursday as an improvement in market risk appetite through the afternoon dragged on the safe-haven currency.
Meanwhile, the pound is struggling to find its feet this morning, with GBP/EUR subdued at €1.1301 and GBP/USD sliding to $1.3679. GBP/CAD is flat at C$1.7603, while GBP/AUD and GBP/NZD are holding steady at AU$1.7891 and NZ$1.9112, respectively.
Coming up, could we see the euro tick higher if Germany’s latest GDP figures indicate the country avoided a contraction at the end of 2020?

What’s been happening?

The US dollar started strongly during yesterday’s European trading session, with the safe-haven currency continuing to catch bids as Wednesday’s risk-off mood remained firmly entrenched.
USD exchange rates subsequently dropped during the second half of the session, as these risk-off flows began to reverse following a larger-than-expected fall in initial jobless claims last week and with US GDP printing in line with expectations.
This pullback in the US dollar aided a rebound in the euro, which was also supported by the publication of Germany’s consumer price index, which printed well above expectations at 1%.
The pound, meanwhile, got off to a slow start on Thursday, amidst concerns over an extension of England’s national lockdown as well as the potential for vaccine shortages to undermine the UK’s vaccination programme.
However, GBP exchange rates improved in step with market sentiment during the second half of the session, helped along by Cabinet Office minister Michael Gove, who claimed there ‘will be no interruption’ to UK vaccine supplies as a result of the EU’s row with AstraZeneca.

What’s coming up?

Turning to today’s session, the highlight looks to be the publication of Germany’s latest GDP figures.
The preliminary release for the fourth quarter is forecast to show Germany narrowly avoided a contraction at the end of 2020, with economic growth at 0%.
Should this prove correct, it would likely indicate the Eurozone’s largest economy will have avoided a double-dip recession this winter, possibly boosting the euro this morning.
For GBP investors the focus is likely to remain on UK coronavirus developments, which may see Sterling continue to benefit from vaccine optimism.
Closing out the session will be the release of the US PCE price index. The Federal Reserve’s preferred indicator for inflation could weaken the US dollar if an acceleration in price growth helps to cheer markets later this afternoon.

Written by
Philip McHugh

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