The last week was quite volatile for Sterling, with a positive start to the week that was then reversed after comments from the Bank of England. Unfortunately, the Central Bank was unable to provide any new catalysts to spur on further buying for GBP which resulted in Pound to Euro exchange rates dipping below the 1.15 area by Friday.
Remarks from the Bank of England suggested that we will not get any further optimism from them until we begin to see economic figures which back up the positive sentiment in the UK- with that being said UK GDP figures that release on Wednesday will be important to watch. After a third lockdown and Brexit disruption it will be interesting to see how Q1 looked overall, any improvement over the forecasted number will be bullish for Sterling.
It also seems clear that the Bank of England will end it’s asset purchasing programme before the ECB and the Fed, but I do not see any reason for an interest rate rise inside 2021- in reality I still think it is way too early to make any projections which makes Central Bank assessments very difficult,
There were some jitters across the pond following a speech from Janet Yellen, the main comment which got the market selling off was about interest rates being too low and will have to go up- now, logically we know she would have meant over a longer time frame, but algorithmic traders only see one word and hit the sell button- which is why we saw a pretty risk off tone through mid week- this was then completely turned on it’s head after a week non farm payroll and employment report on Friday which suggested the U.S economy still has a lot of work to do- which means the asset purchasing will continue for now, and rates will remain low. We saw GBPUSD exchange rates hit 1.40 on Friday following this release and EURUSD go above 1.21.
Looking at Scotland, the SNP were victorious and finished on 64 seats, one short of a majority- but one more than it won in 2016- and talks of another Scottish referendum have already begun. PM Boris Johnson has already shot down the idea for now, but MS Sturgeon has stated that following the pandemic, the referendum will be next on the agenda. This is not a risk worth worrying about today, but will be something to note for the future.
With the UK now looking at the next stage of reopening- and PM Boris Johnson expected to speak on Monday, we may see some of this optimism leak into the Sterling exchange rates- for now, GBPUSD is looking better than GBPEUR- and this may continue for now.
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