By Matthew Vassallo
Sterling has yet to make inroads against the majority of the major currencies this week, seeing its recent gains against both the EUR & USD slowly eroded since the start of last week’s trading.
Whilst the UK government pushed through its plans to lift the final Covid lockdown restrictions on Monday as planned, “freedom day” as it is now widely referred to, did little to boost investor confidence in GBP.
Why? Whilst it’s difficult to tie this week’s lack of positive movement down to one entity, it may be that investors overestimated the positive impact the UK’s accelerated vaccine programme and more dovish economic outlook of late, would have on the Pound.
Some may point towards the fact that the fast-tracked vaccine programme, which has been rolled out in relatively short space of time and administered to a large proportion of the UK population, has been impressive and ahead of the curve compared to many of our European counterparts.
This in turn helped to bring some much-needed optimism that a return to some sort of normality was finally on the horizon. The Pound did reap the benefits of this more positive outlook, and whilst it did meet some resistance before this week’s retraction, it had put pressure on quarterly highs against both the EUR & USD.
Whilst the Pound failed to kick on past these higher trading levels, it would seem for the time being at least, it has sufficient market confidence to help support it around its current levels and thus avoid any significant downturn against both the single currency and the greenback.
The current economic outlook for GBP, whilst more bullish than in recent months, is still being tempered by an underlying concern that the lifting of the final lockdown restrictions on Monday could have a longer-term negative impact. A recent surge of Covid cases both in the UK and Europe, have been a stark reminder to those in power that the pandemic and its lasting impact is far from over.
France has in recent days brought in a new Covid health pass scheme due a surge of new infections, and with the Delta variant rampant across localised hotspots in the UK and abroad, it may be that any economic upturn will be more measured than some of the UK governments bullish initial forecasts suggested.
Looking at GBP/EUR and another potential reason the EUR has managed to regain some ground against GBP is the European Central Bank (ECB) more dovish stance of late. The estimated GDP data for Q3 & Q4 has been raised and whilst the central bank has headed warning due to the recent increase in Covid 19 cases, it would seem that their more positive stance has helped raise confidence in the single currency and in turn boosted the EUR value this week against GBP.