22/01/2021

Sterling continues its run of strength


GBP

Sterling continued its ascent against both the euro and dollar on Thursday benefitting from a variety of factors as sterling reached eight month highs against the euro and two and a half year highs against the dollar.

One of the leading causes for a stronger pound on Thursday were increasingly optimistic views on the UK’s Covid-19 vaccination programme with official data showing that the UK administered 363,508 vaccines in the last 24 hours, taking the total number of people vaccinated in the UK to close to five million. With the UK leading the US and EU member states in administering the vaccine, investors are anticipating a quicker return to pre-COVID normality and rebound in UK economic growth than those countries slower to administer the vaccine.

In addition to this, dampened expectations of the imminent use of negative interest by the Bank of England as soon as next month have also buoyed sterling this week. Bank of England Governor Andrew Bailey stated on Wednesday that he expects the UK economy to recover strongly as the country moves ahead with vaccinating its population against Covid-19 after calling negative rates “controversial” the week prior. Bailey’s comments follow comments from the chief economist for the bank, Andy Haldane, who said the economy could recover “at a rate of knots” from the second quarter. These comments are being interpreted by investors as a Bank of England in “wait and see mode” Andrew aren’t consistent with a bank ready to implement negative rates.

EUR

The European Central Bank voted unanimously to keep its monetary policy unchanged on Thursday, after a wave of new COVID restrictions in the European bloc were announced this week. Germany lead the way extending lockdown until the middle of February, with the Netherlands introducing a curfew from next week.

The ECB decision was widely anticipated by economists and hardly impacted the exchange rate as it was only last month that the ECB extended its Pandemic Emergency Purchase Programme to March 2022 totaling 1.85 trillion. The ECB did add its usual caveat that they stand ready to act if needed, but reiterated that for now interest rates would stay low until the inflation target is met.

Economic Calendar

07:00 – GBP – Retail sales (Mom) (Dec) – Expected: 1.2% Actual: 0.3%
07:00 – GBP – Retail sales (YoY) (Dec) – Expected: 4% Actual: 2.9%
08:30 – EUR – Markit Manufacturing PMI (Ger) (Jan) – Expected: 57.5 Actual 57
08:30 – EUR – Markit PMI Composite (Ger) (Jan) Expected: 50.3 Actual: 50.8
09:00 – EUR – Markit PMI Composite (Jan) Expected: 47.6 Actual: 47.5
09:30 – GBP – Markit services PMI (Jan) Expected: 45
19:45 – USD – President Biden speech


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