WHAT ARE STERLING’S CATALYSTS?
Sterling has made substantial gains against the majority of major currencies since the beginning of the year. With GBP/EUR threatening to breach 1.16, the best levels since March of last year and GBP/USD breaching 1.40, the highest levels since March 2018.
The gains can be attributed to two main factors. One of which is the fact that a no deal scenario is now off the table regarding Brexit. This was investors main concern when considering getting involved with sterling. Many economists were predicting GBP/EUR could get close to parity in the event of a no deal. Fortunately, a deal is now in place and although it may not be the best deal in the world, a no deal scenario has been pulled.
Last week a rather significant resistance point was breached on GBP/EUR rates. 1.15 had held up for 18-months when Theresa May was negotiating a Brexit deal. Every time GBP/EUR hit the 1.15 mark it quickly retracted. The fact the GBP/EUR has now been above 1.15 for nearly a week bodes well for sterling.
Another catalyst for sterling has been the rapid rate of the vaccination programme in the UK. 18 million UK residents have now been vaccinated and it is expected that all adults will have received the vaccination by the end of July. This is great news and means the easing of lockdown measures due shortly, the UK economy could bounce back in a quicker fashion from the economic impact of the pandemic before it’s counterparts.
UK BUDGET RELEASE
The budget should be watched closely should you have a currency requirement involving the pound as it has been known to move markets. Next week, Wednesday we will see the budget release following a postponement of the last budget which was due in in September.
So far in 2021 there have been conflicting rumours as to which stance Chancellor of the Exchequer, Rishi Sunak will take. Some believe the Chancellor may set out to balance the country’s budget, while others believe he will focus on supporting the country through the continuing pandemic and save book-balancing measures for later down the road. There is no doubt the second wave of the pandemic is causing real damage to the UK economy. As such, it is likely that Covid 19 support will be a priority.
Boris Johnson stated the following during his speech on Monday:
‘We will not pull the rug out,’. ‘For the duration of the pandemic, the government will continue to do whatever it takes to protect jobs and livelihoods across the UK, and my right honorable friend the Chancellor will set out further details in the Budget next Wednesday.’
There are rumours that Mr Sunak will allow the Universal Credit increase of £20 to stay in place and it is likely there will be no increase in taxes. One of the key areas of interest is whether or not the furlough scheme will be extended, this is a huge burden on the UK economy and Sunak does have the potential to call an end to it in April should he wish to.
Sunak also has a big decision to make in regards to the stamp duty holiday, the stamp duty relief is set to end 31st March and many are calling for an extension of six months. It could be the case however that Sunak simply extends it by six weeks to avoid property sales falling through after 31st March deadline.
If you are selling sterling short term it could prove wise to take advantage of the currency’s current form and purchase before the budget is released.
EURO CONTINUES TO STRUGGLE
The euro is currently having a rough time against the pound due the slower rate of vaccination in the Eurozone. There could be room for further gains for the pound with many considering sterling still to be undervalued at 1.15 on GBP/EUR, the historic average since the euro’s creation in ’99 being 1.33.
GDP data has declined across the board and current forecasts predict that many EU members will struggle to get their respective economies back on track by the end of 2021.
France and Germany both have been impacted heavily by the Covid-19 pandemic and as the two largest contributors to the Eurozone economy not expecting to get back on their feet until 2022 it does not bode well for the euro.
If you are looking to move short term it could prove wise to keep an eye on data releases to try and judge when to perform your trade, historically they have been known to move the markets.
The next data release of consequence is due tomorrow at 10am, Consumer Confidence data.
Consumer Confidence is released by the European Commission and gives a clear insight into the level of consumer confidence in economic activity. If there is a high level of consumer confidence this has the potential to cause economic expansion and could result in Euro strength, a drop could result in euro weakness.
There is expected to be little change from last month’s data, with figures due to land at -14.8, if data lands away from expectation expect market volatility.
US DOLLAR LOSING INVESTOR CONFIDENCE
The US dollar has lost some ground against the majority of major currencies since the beginning of the year and this can be attributed to several factors. Bidens presidential stance is considered by some to be less business friendly to that of his predecessor which has dented investor confidence, but considering it is still so early in Biden’s tenure it would be harsh to judge him in current circumstances.
There is also of course the economic damage that has been caused due to the pandemic. The US has been amongst the worst hit western nations and as the US is one of the world’s largest economies this has an effect on the global economy. The US is not considered to have handled the pandemic in efficient fashion and the impact of this mishandling could have long reaching consequences, the true impact has yet to be revealed. Biden is expected to soon announce a recovery package for the US economy the size of which has not been witnessed since the economic collapse of 2008. The volume of the stimulus will be sure to impact US dollar value.
Short term, we could see market movement as Federal Reserve Chair, Jerome Powell is due to testify before congress today. He is expected to give a broad overview as to the state of the US economy and monetary policy. If any hints are given to a change in monetary policy we can expect change in dollar value.
Later in the afternoon we will see the release of new US home sales, with real estate being a key factor in the health of an economy this data release will be keenly watched by investors. There is expected to be a rise from the previous release from 1.6% to 2.1% which could benefit the dollar.
If you have a currency requirement and would like assistance from one of our brokers to try and help in making an informed decision on when to trade, please do not hesitate to get in touch.