Will GBP Finally Break Free of its Economic Shackles?

By Matthew Vassallo

Whilst GBP has remained relatively docile against the majority of the major currencies over the past week, it has continued to find support above 1.16 against the EUR and 1.37 against the USD.

The Pound seemed to be gaining some traction in line with the UK government’s fast tracked vaccine programme but found resistance as it touched 1.17 against the EUR last week. The USD also managed to hold off any prospective surge by GBP towards the key resistance level of 1.40, with the greenback likely finding support in line with the upturn in the US job market and a stark improvement in their economic forecast for Q3 & Q4 of this year.

The current stalemate may be something of a coming trend, although the Pound recent improvements will offer hope of better times to come. As the UK moves towards what we all hope we be a full lifting of the current UK lockdown restrictions on the revised date of July 19th, the key question now is whether GBP can finally break through the current resistance levels against both the EUR & USD. However, an air of caution seems to be holding investors back, due to the UK governments previous stance, which has been one of moving the goalposts just as it would seem a level of continuity had been found.

Looking at GBP/USD rates it is interesting to note that the greenback found plenty of support last week , as reports of a surge in UK Covid 19 cases relating to the now widespread delta strain impacted investors’ risk appetite for the Pound.

Whilst investors’ current sense of caution seems to the underlying tone of Sterling’s recent evolvement, or lack of, it would at least suggest that the Pound may now well find a bottom-line level of support it has clearly lacked over recent months. With GBP seemingly gaining a more solid foothold against both the EUR and USD, the question now is whether the current trend is a sign of a potential return to somewhat loftier heights, or yet another false dawn as the Pound struggles to break free of its recent economic shackles.

Whilst GBP may be struggling to make significant inroads against either the single currency or the greenback, it has in the main fared better against commodity-based currencies, such as the AUD, NZD and CAD. With Australia recently announcing that they would be returning to a full lockdown, all be it a short one, amid fears of a recent surge in Covid 19 cases. GBP/AUD rates s moved back towards 1.84 over the weekend, whilst GBP/NZD rates continue to trade around 1.97. With the pandemic still having a negative impact on the global markets, it is unsurprising that the commodity-based currencies, which rely heavily on a buoyant global market to prosper, are struggling to find the support necessary to halt their current downward trend.

Looking ahead and there are some key economic data releases this week, which have historical relevance in terms of their potential to impact GBP’s value. Today see’s the release of the latest Market Services PMI data, with Tuesday’s Construction PMI data also likely to be of interest to investors. Whilst there is little data of note on both Wednesday and Thursday, Friday could be the key data for anyone holding a GBP position, Industrial & Manufacturing Production figures, and GBP data potentially having the most significant impact on GBP’s value as we head towWeards the end of this weeks trading.