The Pound resilient in present environment
So it turned out to be a bumper week for the Pound after all expectations were pointing towards a quiet week in the market. Nearly 2-cents was made against the Euro and 2% versus the US Dollar on the back of BoE comments suggesting negative interest rates were not imminent. The continued success of the UK's aggressive vaccine roll-out plan also added to the positive sentiment towards the £.
The Pound's position however has since revalued and pretty much all economists are of the opinion that it's a matter of time until Sterling's out-performance mode is switched off. I think for any real loss to materialize and be sustained (1-2%), it may take a month or so, once we know the damage caused this time to the economy due to lockdown. But so far so good, after November's GDP figures easily beat expectations, so the data in Q1 could surprise us all..
Data houses overwhelmingly support Sterling in the second half of the year and so any losses (if any) from the current position should quickly be clawed back. The psychological barriers of £-€1.15 & £-$1.40 mid-market are the hopeful trading ranges for later this year. If the UK achieves herd immunity before the Euro-Zone & US, house prices remain buoyant and the right tax policy is implemented in March, Sterling could have a 'field day' in Q3/4.
This week, there is a PMI Friday to look forward to where the EU & UK show how December's sectors fared. This data for the next 6-months will be crucial in the currency market, as it will show just how bad things have got and how quickly they have recovered. Before that, there is inflation figures from the EU & UK that will show two very different stories. The UK's inflation rate is expected to rise to 1.3% edging closer to the 2% target, whereas the EU's rate is expected to remain way off their 2% target at just 0.2%. The ECB may have no choice but to step in and tackle the higher Euro in 2021, meaning positive news for £-€ buyers.