GBP benefits from a weaker USD

By Lauren Buckner

The USD has seen significant weakness this week following a disappointing jobs figure on Friday from the States. US Non-farm payrolls (a figure representing the change in jobs within the US economy over the preceding month excluding agriculture) was expected to show almost one million new jobs created in April however, the number came in significantly lower at only +266,000. This suggests that the US economy is failing to rebound from the Covid pandemic at the expected pace and the outlook for lower interest rates is likely to continue for the medium term which makes the Dollar less attractive to investors.

As a result, the Euro has moved to its strongest level against the Dollar since late Feb increasing by over a cent and half while Sterling managed to climb 2.5 cents (a higher percentage) . This in turn means that the Pound has been able to make gains against the Euro – the pound being the favoured currency at present. This has resulted in a good buying opportunity for our clients needing to top up their accounts in the EU or indeed any USD buyers.

The value of the Pound has also been bolstered by the continued progress of our vaccination programme (over two thirds of UK adults have now received at least one dose) and confidence in the economic recovery as we continue on plan with our ‘roadmap to recovery’ from the Covid crisis. However, the moves were corrected slightly against the Euro yesterday afternoon after the German ZEW report – measuring investor confidence in Europe’s largest economy – was released at a 20-year high!

It is believed that the strong rollout of the vaccine programme in Q2 for Germany and the EU will help fuel a strong economic recovery. With Sterling gaining strongly in Q1 this year due to our impressive rollout of the Covid vaccine it follows suit that the EUR would also strengthen once supply chain issues were resolved and rollout implemented. Therefore, the recent boost in GBPEUR rates have offered a welcome opportunity to purchase EURs in what has been a rather stagnant market over the past few weeks and could easily see a correction if the EU recovery and vaccine programme continue to impress. Additional uncertainty for Sterling could also come from ongoing pressures around a Scottish referendum for independence and is an interesting topic to begin to follow in reference to the value of the pound.

This morning’s UK GDP figure has again bolstered the Pound dropping less than 1.6% from the previous quarter. Showing only a -1.5% decline in GDP for Q1 (while the UK was in lockdown) the sentiment around the UK’s economic recovery remains positive. Chancellor of the Exchequer Rishi Sunak commented (that)  “despite a difficult start to this year, economic growth in March is a promising sign of things to come.”

Adding further volatility to the market are the current tensions in Israel which could see some correction on dollar weakness as risk off/risk averion filters through to the financial markets and investors flood in the USD as a safe haven currency which could correct the recent moves. Please keep in touch with your Account Manager for further market updates which could affect your currency transfers.