The British Pound had reached a new high after eight months against the euro and US dollar in the past week. Now it has retreated, and it seems like the weekend won’t be strong either.
Analysts said that Pound Sterling would stay well supported amid the rising global markets and the vaccine rollout in the United Kingdom.
The British pound-to-euro exchange had hit an impressive month after eight months at 1.1324 on January 21. But as of January 22, it is now down by almost 100 pips at 1.1250; the pound-to-US dollar increased to 1.3745 on January 21 before it retreated to 1.3678.
Joe Manimbo, the Senior Market Analyst at Western Union, said: “Another day, another high for the U.K. pound which touched its strongest since May 2018 against the greenback. Sterling is shining amid fading prospects for Britain to resort to negative interest rates.”
Two Fundamental Forces Driving Pound Sterling Trade
Two fundamental forces are important in the Pound Sterling trade. The first one is the rising or the falling of the stock markets.
A growing correlation confirms the UK currency is now reestablishing a great correlation with broader risk trends. The Brexit deal has faded as the main driver for the currency.
The decline witnessed on January 21 matches a broader turn lower for global stock markets, which was traded in the red during the Asian session following a sell-off late in the United States session. Europe will most likely follow that plan. The British pound could end the week on a disappointing note if the markets do not make any gains.
The second one is the UK’s fast vaccine rollout connected to the US and the EU, and it should remain a source of support.
John Meyer from SP Angel said: “Sterling hits 8-month high against Euro as the UK continues to pull ahead in the vaccine race. The UK’s faster rollout of Covid-19 jabs is leading to hopes that the UK will recover at a faster pace once immunity is established.”
If the UK can unlock the economy on a more sustainable basis, the expectations for a rate cut into the negative interest rates at the Bank of England will most likely be avoided. The interest rates matter for Pound Sterling, and the lingering expectations for the negative rates have given problems over the past few months.
If the growth and confidence improve due to vaccinations, expectations for negative rates could recede further and support Pound Sterling.
Meyer added, “The UK is fourth highest in the world in terms of the proportion of the population vaccinated, while the EU plays the blame game as countries begin to see delivery shortages of the Pfizer vaccine.”
Joe Tuckey, an analyst for Argentex Group, said: “Trading appears to be boosted by improving GBP sentiment, and the currency breached a major technical level against the Euro – 1.1280 – as the UK rolls out vaccines at an impressive rate and the post-Brexit picture is at least clearer.”