The British pound showed improvement on January 19 amongst global investors as it appreciated against the Euro, US Dollar, Yen, and Franc.
Both the European and Asian stock markets have gone higher in the middle of the week, while the futures for the United States markets also show an opening on Wall Street. This suggests that Pound Sterling’s performance is showing promise globally.
Pound Sterling’s Impressive Performance
The general setup shows that the UK currency is finally showing a positive link to investor sentiment trends, with the gains against the Euro and US Dollar today connected to a more confident global stock market.
Hann-Ju Ho, an economist at Lloyds Bank, said, “Risk sentiment was more positive in Asia, partly on US fiscal stimulus hopes, with the incoming Biden administration proposing an additional $1.9tn on top of the $900bn packages passed by Congress late last year. Treasury Secretary nominee and former Fed Chair Janet Yellen yesterday urged lawmakers to “act big” on the next fiscal package. She also signaled some hard-line policies on China would continue.”
The UK currency could extend higher if and only if a trend of improving sentiment and stronger equity markets continued this year. Manuel Oliveri, the FX Strategist at Credit Agricole in London, England, said, “Our FX Risk Index remains in the strongly risk-seeking territory.”
Jeremy Thomson-Cook, Chief Economist at Equals Money, said, “The generalized pull higher in risk appetite has supported Sterling.”
The latest developments could sign that there is a movement away from any issues related to Brexit and that there is a plan that is towards a more predictable relationship with markets for Pound Sterling in 2021.
The Pound-to-Euro exchange rate has increased by 0.50% at 1.1300. The Pound-to-Dollar exchange rate is quoted at 1.3671 is up 0.40%. The Pound outlook could depend on how the global economic recovery happens this year and how long the investors can continue to drive the markets higher.
Oliveri said, “Although politics and developments on the Covid-19 front around the world should continue to prove a strong driver for sentiment, investors’ focus is also shifting to the US earnings season, which just kicked off. Given the guidance presented so far, the negative surprise potential is likely below. Hence, it cannot be excluded that a combination of more aggressive fiscal measures and constructive earnings releases will keep growth expectations and appetite for risk assets supported.”
The Pound-to-Euro exchange rate has increased to 1.1300, which is the highest level recorded since May 15, 2020, in a move that could show a massive about-turn in fortunes for the UK currency.
The GBP/EUR rally that was witnessed last week failed at a technical resistance point during January 15 and January 18 sessions. The pair were pulling back from this type of level on January 20.
It was reported that the Pound is possible to get its recent gains back to the mid-point of a multi-month range in the GBP/EUR exchange rate, which is around 1.11.
This level roughly translates to 0.8865 in EUR/GBP terms. It was a make-or-break point for the recovery of the Pound Sterling; it is a break higher that could lead to a fast acceleration into new multi-month highs. However, recent history proves that attempts to break above this recorded level usually fail.