The market maintains a bullish outlook for the Pound
Last week saw the Pound extend gains across the board, as investment banks upgraded their forecasts to Sterling both near and long term. The BoE suggested that negative interest rates were not being looked at for 6-months, after a much better than expected economic performance. Analysts already believe that the UK will have a bumper second half of the year and so negative rates (which would hurt the £ greatly) are being seen as more of an insurance policy rather than in the game-plan.
The success of the UK's vaccination programme has been the market headliner for weeks and at each new milestone, the UK gets a bit closer to relaxing restrictions and opening up the economy. March may come too soon for us to be out of lockdown, but the market has priced in April at the latest, so let's hope Boris can make this happen and the Pound can surge some more!
16% of the UK's population has received its first dose of a vaccine, this is ahead of the US (10%) and miles ahead from the two-biggest economies in the EU; Germany (3.5%) & France (2.8%). It's because of this that investors are bullish on the Pound and the majority of forecasts have been upgraded. Credit Suisse have today told clients they have downgraded expectations on the EUR in 2021. The slow vaccination process, economic underperformance and negative political developments have all contributed to the downgrade, which they believe will see £-€ hit 1.15 by the end of Q1.
So it seems investor sentiment has taken a complete 360 view on the Pound in the first quarter, as significant momentum points to more gains to come. £-€ is still trading at the highest levels since May 2020 and £-$ continues its May 2018 highs. There is talk the latter can push onto 1.50 by year-end, which was last seen in December 2015..
This week sees very little in terms of economic data, that is until Friday where the UK produces December's GDP figures. The market is expecting 'good' numbers compared to the previous month and so we should see a bounce in the rate if hit. Economists are predicting the event to be low-key, as it's determined that traders are more interested in current and future events. But, economy data is economy data at the end of the day and this is the most important of all, so expect some volatility Friday morning.