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Sterling In Focus Ahead Of 2021 Budget

Sterling In Focus Ahead Of 2021 Budget

GBP

Nationwide reported that UK house prices have grown at a faster rate than last month but there’s been little impact on the currency markets. Also, German exports to the UK fell by 30% in January indicating that it’ll take some time for the brexit effect to disappear from the trade data. Sterling fell in the small hours but held above 1.3850 against the Dollar, gradually recovering ground as the Dollar weakened. 

The Pound was underpinned by firm risk appetite and demand for assets exposed to faster economic growth, price pressures and higher yields. The underlying lack of momentum for the Pound to strengthen further led to speculation that Sterling had found it’s level and there was also caution ahead of this morning’s UK budget.

By close of play Sterling had pushed to highs near 1.3975 on the Dollar and the Euro settled just below 1.1560. Overnight, speculation that the furlough scheme would be extended until the end of September sapped confidence in the economic recovery story. The Pound dipped to near 1.3950 against the Dollar and 1.1545 against the Euro.

 

USD

The dollar overall continued to lose ground with significant gains in commodity currencies.

Federal Reserve (Fed) Governor Brainard stated that the central bank would remain patient on monetary policy and was focussed on realised progress towards inflation and employment goals. She reiterated that monetary policy tools should not be removed until there is a substantial improvement in the employment rate and she would be concerned if there was a disorderly increase in bond yields. There was no overt move to push back against higher yields and the dollar attempted to stabilise.

San Francisco Fed President Daly stated that any inflation spike will be short-lived with a full job-market recovery to take at least a year or two after the US is fully vaccinated. Dovish Fed rhetoric undermined the US currency with the dollar unable to recover ground this morning.

 

EUR

The Euro is hovering below the 1.2100, picking up from yesterday’s four-week low of 1.1992. Euro buying has slowed somewhat but will soon look to gather pace and recapture the 1.21 mark on a more sustained basis.

Courtesy of a bearish tone around the safe haven Dollar, the single currency will look to capitalise as the risk tone remains upbeat amid vaccine and stimulus hopes.  With the Eurozone CPI data not quite hitting expectations, it also failed to deter further Euro buying, as the market continues to look at a weaker Dollar and the strong drivers.

Attention now turns towards the Euro area Final Services PMI releases for further directional bias.

 

Data to watch

12.30 GBP – Annual Budget Release

13.15 USD – ADP Employment Change

15.00 USD – ISM Services PMI

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