GBP/USD rallies near $1.40 on UK economic optimism

Philip McHugh February 19th 2021 - 2 minute read

The pound came close to breaking through a key barrier against the US dollar on Thursday, amidst growing hopes for a swift UK economic recovery.
Meanwhile, Sterling is struggling to extend these gains this morning, with GBP/EUR muted at €1.1545 and GBP/USD flat at $1.3984. GBP/CAD is rangebound at C$1.7734, while GBP/AUD and GBP/NZD have dipped to AU$1.7917 and NZ$1.9287, respectively.
Looking ahead, the latest PMI releases from the UK and Eurozone will be the main focus today as investors seek to gauge the economic damage caused by lockdown measures this month.

What’s been happening?

The pound skyrocketed yesterday, with the currency picking up considerable support as the UK’s substantial decline in new coronavirus cases in recent days helped to fuel hopes for a relatively swift easing of lockdown measures over the next couple of months.
Further boosting Sterling sentiment were reports indicating that Chancellor Rishi Sunak will defer plans for tax hikes in next month's budget, and will instead seek to support the UK’s exit out of lockdown and eventual economic recovery with additional fiscal stimulus.
In contrast, the US dollar collapsed on Thursday, dropping in line with a fall in US Treasury yields, which pulled back from a one-year high.
This appear to be attributed in part to disappointing US jobless claims, with another shock rise in new claims last week raising concerns over the health of the US job market and the trajectory of the country’s economic recovery.
This downturn in the US dollar was to the benefit to the euro as a result of the negative correlation between the pairing, with EUR exchange rates also being lifted yesterday by a better-than-expected Eurozone consumer confidence reading.

What’s coming up?

Kicking off today's session was the publication of the UK’s latest retail sales figures, with the pound already on the back foot following a sharp decline in sales growth last month.
This pullback in Sterling may be accelerated a little later as February’s preliminary PMI readings are expected to reveal another worrying drop in UK economic activity.
The publication of the Eurozone’s own PMI figures may prove positive for the euro however, if this month's reading also surprises to the upside.
Across the pond, it's likely the US dollar will continue to trade in relation with US Treasury yields, with the latter potentially rising if there are any positive developments regarding President Biden’s stimulus push.

Written by
Philip McHugh

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