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Pound Bounces Back, Scores Higher than Euro

January 31, 2021 by Sanya Dot

The British Pound still has a tremendous near-term impulse that could get new highs over the next few weeks, with foreign exchange markets looking to the potential for a sustainable exit from a pattern of economy-breaking lockdowns in 2020.

UK Pound Going Steady

Pound Sterling suffered a setback towards the middle of the week but fortunately recovered through January 28. The currencies reacted to the ups and downs in global equity and commodity markets, thus confirming the Pound’s growing importance globally.

The UK pound’s near-term outlook will likely depend on how broader markets to trade, whether the rebound can be prolonged, or whether the decrease witnessed on January 27 reestablishes.

However, another key driver for the UK currency, particularly relative to the Euro, is the United Kingdom’s vaccination program, which suggests a more sustainable exit from lockdown in the country could start occurring from March 2021 to the next few months.

The vaccination program is the one source for Pound Sterling exchange rates, limiting any stock market jitters’ downsides.

The Pound-to-Euro exchange rate increased by two-thirds of a percent last week, thus delivering a new high for the first time in just eight months at 1.1347, and in the process, it created a trend of appreciation that has been in place since December.

Joe Tuckey, an analyst at foreign exchange brokers Argentex, said that they are seeing significant technical levels being breached in Sterling’s major currency pairs. A resistance level of GBP/EUR 1.1280 has been broken to the upside and has been long-standing, and for GBP/USD 1.3712 as the resistance level was breached.

Tuckey added that after some recent intense sessions helped by positive sentiment surrounding the United Kingdom’s vaccination efforts, the UK pound has been buoyed this week by the labor market data, which was less gloomy than many feared. According to another analyst, aA break higher into a new range shows to be the odds-on outcome of the current technical battle in the Sterling-Euro market.

Jeremy Boulton, a market analyst from Reuters, said that the British Pound is pushing the upside limits of ranges held since June 2020. It is a great time to bet on a break higher.

Boulton explains that there have been some massive changes that favor a rally. The UK pound has traded positively since the finalization of Brexit, and that alone cause a break higher.

The analyst stated that month-end usually see the UK payments to the European Union, with the Pound-to-Euro conversion, thus creating a demand for Euros.

These types of payments ensured a steady and dependable month-end demand for Euros could limit Pound Sterling’s upside potential.

These levels are identified as the 100, and 200-week monthly average, located at 0.8840 and 0.8836 for EUR/GBP, says the analyst adds the monthly average that lasted for 21 months and is 0.8846, the peak of a thick cloud is 0.8833. The closing breaks would open the downside potential, and the cloud base is 0.8169.

Filed Under: Financial Markets

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