GBP : Latest
(Thu, 18 Feb 2021). This week’s new narrative – that the global economy will soon recover from the slump caused by the Covid-19 pandemic and that inflation will rise at the same time – will likely continue to weaken currencies like GBP against the USD, perhaps after the current round of profit-taking has run its course.
However, GBP strength against EUR will also likely continue as vaccinations in the UK continue to outpace those in the EU.
GBP/USD AT RISK OF FURTHER WEAKNESS
The market narrative earlier this week – that Covid-19 vaccinations will prompt the global economy to recover strongly from the slump caused by the pandemic, bringing rising inflation with it – will likely re-emerge once the current round of profit-taking has run its course.
Hopes of a powerful economic bounce as lockdowns end, especially in the US, have led to a sharp rise in yields on US Treasury bonds and notes in response to those inflation fears, and investors in bonds will likely resume their selling, instead buying value stocks and also commodities like oil and copper that would benefit from an upturn.
That rise in yields will also likely continue to benefit the US Dollar even though fears that US monetary policy will be tightened soon, and that the expected package of stimulus measures will be cut back or delayed, seem wide of the mark for now. In turn, a further strengthening of the US Dollar would likely hit AUD, NZD, GBP, EUR and CAD once traders decide to buy again after the current pause for breath.
Note, though, that GBP has not been the hardest hit currency this week, with EUR weaker still as investors continue to fret about a slow vaccination program in the EU as well as reported resistance to the AstraZeneca vaccine in France and Germany.
Moreover, UK Gilt yields have been climbing too, giving GBP an advantage over EUR that should lift the UK currency further in the days ahead.
One more change this week has been that traders have begun to look more closely at the economic data, like the recent US retail sales figures and the UK inflation numbers, to make sure that a global recovery is indeed in place and that inflation is indeed rising.
DISCLAIMER ON
GFS ASIA TEAM
- 0
- 0
- just now
- 0