Last week was another strong one for GBP with Pound to Euro rates touching 1.17 briefly on Thursday (For all of 60 seconds) before descending back down to 1.1640. The main reason for Sterling ending the week lower was the risk off play in the U.S Stock market after another rise in prices in the American bond market on Friday, which kept Sterling lower. The encouraging thing was that Sterling managed to hold the line at 1.16 which indicates strength. Unfortunately Dollar strength has pushed Cable prices lower into the 1.38/1.39 region after a visit to 1.42 a few weeks ago.
My belief is GBPEUR exchange rates still have the potential to go higher, but it is always worth hedging yourself due to the current price action. Unfortunately Sterling is a currency that seems to only benefit in a risk-on market, but right now where confidence in the market is down then Sterling would be set to underperform with it. Generally, my target for GBPUSD is still above 1.40 and we should start to see a continuation in this rate going up soon.
The BoE have expressed that they believe inflation should return to and potentially above 2% in the coming years which indicates potential interest rate hikes (From 2022 onwards), which is bullish GBP and bullish for the UK economy- if the UK manages to stick to its reopening dates then I see no reason to short the Pound in the immediate future.
This week, the main events really are from the Central Banks- firstly the FED will have their interest rate decision on Wednesday (No change expected) but the market will be watching Jerome Powell for any commentary about the bond market- the consensus really is that he will do nothing and we may see the market throw a tantrum on the back of this- but this is not entirely a bad thing, there is no intervention currently required from the Fed and it is correct for the Fed to stand their ground here. We then have the Bank of England that will give their interest rate decision on Thursday (No change expected) but any comments from the BoE will be noteworthy in regards to interest rates and bond purchases.
As always, if you have any questions or require any further information please don’t hesitate to contact me – prem.raja@currencies4you.com