Monthly Wrap: GBP – Pound hits two-month high amid reopening optimism

Philip McHugh May 20th 2021 - 2 minute read

Key takeaways:
–              Pound bolstered by easing political uncertainty
–              Renewed coronavirus concerns start to limit upside
–              GBP Monthly lows: €1.14, $1.38, AU$1.77, NZ$1.91, C$1.68
–              GBP Monthly highs: €1.16, $1.42, AU$1.82, NZ$1.97, C$1.75
 
The pound has firmed over the past month, having initially faced some pressure as a result of political uncertainty in the UK.
 
This was primarily driven by fears a strong performance by the Scottish National Party (SNP) in Scotland’s parliamentary election could provide leader Nicola Sturgeon with the mandate to hold another independence referendum.
 
While the pound made attempts to rally in early May, gains were short lived after GBP investors were left disappointed that the Bank of England (BoE) wasn’t more aggressive in tapering its weekly bond purchases.
 
The SNP’s failure to secure a majority then triggered a more sustained upswing in Sterling, with GBP/USD hitting a two-month high and the GBP/EUR exchange rate soaring over 1% on the Monday after the results were announced.
 
These gains were further reinforced by Boris Johnson’s confirmation that more of the UK economy would be allowed to open up from mid-May.
 
However this month’s rebound in Sterling has been tempered somewhat by growing concern over the spread of the Indian variant of the coronavirus in the UK.
 
Boris Johnson has said the strain is of ‘concern’ and has warned that it poses a possible threat to the government’s roadmap for easing coronavirus restrictions, although it opted not to delay the reopening of indoor hospitality venues on 17 May.
 
Looking ahead, UK coronavirus developments look to be a key focus for GBP investors over the coming month, with considerable downside potential in Sterling if the government is forced to delay plans to move forward with final phase of reopening next month.
 
Elsewhere, the pound could find support from the UK’s latest economic releases, assuming they continue to paint a picture of improving economic activity, and feed into expectations for a strong rebound in GDP in the second quarter.

Written by
Philip McHugh

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