Tricky week ahead for Sterling

Hi everyone,

I'll start the report today with a quick review of what happened last month before looking ahead for this week/month. April obviously wasn't the best start to the eagerly anticipated Q2 for Sterling against many currencies. £-€ rates saw a dramatic fall from 1.18 mid-market down to 1.1460 at one point.

The Euro's success was mainly driven by a turnaround in vaccine deployment as well as strong economic data (primarily from Germany). The UK though also played a part in a strong month for the €. First dose vaccinations slowed considerably (300k per day down to 110k) and some investors had expected restrictions to be lifted sooner, seeing as the Prime Minister was fixed on 'data, not dates'.

Initially, it wasn't great for £-$ rates either with mid-market trading at 1.39 and a week later falling to 1.3680. This currency pair did however recover and has stabilized between the 1.39-1.40 ranges, although it did get hit with end of month profit taking last Friday (-0.5%). Cable remains on a modest upward trend and we should continue to see $ weakness as the US and global economic outlook gets ramped up. 

This week is all about the BoE meeting on Thursday and local elections in the UK. On the latter, the main thing analysts will be looking at is if the pro-independence parties in Scotland win and if so by how much. As previously explained, any news of a referendum will weigh on the £, regardless of how long it may take to come. 

This month's BoE meeting is an interesting one that is gaining traction amongst economists. Many are optimistic of hearing announcements towards upgrades of growth and inflation forecasts and also guidance of when the bank will tee up a reduction in its rate of asset purchases. So far only Canada has taken the step to do the latter and because of the UK's fast progress on vaccinations, the BoE may be following suit. Any positive news from the press conference on these points will lift the Pound. 

The month itself should be a fruitful one for Sterling. UK economic data is expected to be very strong, more restrictions are being lifted and according to reports, the vaccine rollout will speed up once again in the middle of the month. Currently, 34 million people have been vaccinated (70% of adults) and 14 million have had two doses. A fresh surge in supplies will see people aged 35-39 called for their first vaccine next week. This means the Governments formal target of all adults to be given a vaccine by the end of July, is several weeks ahead of schedule and it also means we are a huge step closer to herd immunity.

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