Vaccine turning out to be quite the tonic
Yesterday reports surfaced that the EU would extend the ratification period of the UK/EU trade deal, pushed back from February to April. With the deal already in operation the impact should be limited. The Pound fell at the outset with lows at 1.3520 on the Dollar and the Euro had pushed to highs of 1.1205. Sterling gradually pulled back some ground on vaccine optimism when the government announced 4 million vaccines had been administered; far ahead of our peers. This fed expectations that the UK would ease restrictions earlier than the Eurozone and supported the Pound.By the close of business the Pound had climbed to near 1.3600 against a weaker Dollar and the Euro drifted to 1.1225.
Stronger risk conditions globally this morning have enabled the Pound to move above 1.3600 on the Dollar with the Euro around 1.1250.
Overall ranges were narrow, especially with US markets closed for a holiday, together with a lack of new incentives and data releases.
Markets were monitoring US political developments with extremely tight security arrangements in Washington ahead of President-elect Biden’s inauguration on Wednesday. The dollar eased slightly later in the day with a recovery in commodity currencies and the Euro secured a slight net recovery.
Stronger risk appetite curbed potential dollar demand on Tuesday with commodity currencies posting significant net gains.
The Euro has picked back up this morning having previously hit weekly lows around the 1.2055 against the Dollar. Fuelled by speculation of liquidation of stale long Euro positions following the recent retreat, we may now be seeing the first signs of a reversal as Euro bulls come back into the market.
In its latest monthly report, the Bundesbank stated that the German economy was resilient in the fourth quarter of 2020 as a rebound in construction and industry offset the impact of a slump in the hospitality and retail sectors. The bank did, however, warn that there could be a sizable setback if infections fail to ease significantly and restrictions on activity persist or are tightened. The German government will hold further talks with regional leaders on Tuesday with expectations that restrictions will be tightened and these concerns will continue to have some restraining influence on the Euro. Italian Prime Minister Conte continued his efforts to salvage the coalition government, although the overall market impact was still limited.
As of writing, the Euro currently trades just over the 1.21 mark against its US counterpart.