Light at the End of the COVID-19 Tunnel Aids the Pound

GBP EUR Exchange Rate: Weekly Review July 16  

The pound rose to fresh highs last week against the Euro and the US dollar, as investors became more confident about the UK’s vaccine plans and less worried about the economic damage ahead.

GBPEUR levels broke 1.13, the highest on the interbank rate since May 2020, and GBPUSD traded strongly above 1.37, the highest since May 2018.

With there lots of talk of ‘pent up’ demand as those in jobs and work continue to squirrel away in savings, there is high expectation that when Brits can get back in the pubs, shops, and restaurants they will be spending a plenty.

House prices have been rising and with it more difficult to spend at the moment apart from online, some in society might well be feeling richer. There is the flipside of course, that the millions impacted negatively by this will be spending much less and the government has spent billions in propping up wages through the furlough scheme.

Despite the negative economic effects of COVID-19, there is a light to the end of the tunnel that has given a boost to sterling, as the UK is a very much consumer driven economy and when citizens can get back out there working and earning, the bounce potential is in the minds of investors quite strong.

Will the Pound be Able to Keep up this Performance?

Whether or not the performance of sterling will be able to continue is of course up for debate, as investors seek to better understand just what is around the corner.

Another reason for a stronger pound is the reduced chance of negative interest rates, as evidenced by the improving economic outlook ahead with the predictions of last year the UK would be forced to cut below the record lows of 0.1% much reduced.

Longer term, we will need to see the latest data and just how much damage the current lockdown has inflicted but anecdotally, there still appears to be lots of people in DIY shops, and out and about in the supermarkets. Maybe this lockdown will not be quite as negative fort he economy as the first one?

US Interest Rate Decision Could Influence all Currency Pairings

This week is another important one for the US dollar, with the latest US Interest Rate decision from the US Federal Reserve, where they will decide on policy moving forward.
So far, there has not been a change to the expectation of the US keeping interest rates on hold for longer, but the wide ranging stimulus package promised by the Biden government has triggered a bigger move in markets with the dollar weaker as a result of this.

The confidence this matter creates for the financial system has boosted the value of stocks, and as a safe haven currency the US dollar has weakened as investors feel emboldened to invest in more potentially risky shores of greater return.

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