GBP - British pound
Whilst Joe Biden’s inauguration as the 46th President of the United States across the pond sent positive ripples through the global markets, sterling was boosted by stronger than expected inflation data yesterday. The Consumer Price index year on year was released at 0.6%, marginally better than the expected 0.5%, but strengthens the argument that the Bank of England do not need to enact any more interest rate cuts in the near term. Beyond this, sterling’s strong performance over the cause of yesterday and today can be attributed to a broader buoyant investor sentiment and stock markets in the green, as risk sentiment floods back into the markets.
Sterling broke above its key psychologically significant 1.37 marker against the US Dollar overnight, with analysts stating that a broad-based rally in equity markets are linked to the stimulus promises of the new Biden administration. This positive broad market sentiment was amplified by optimism around the new administration ushering in a strong Covid rescue package that will underpin US growth and the ongoing stock market rally. The pound's recent behaviour is testament to what we have seen over the years, outperforming when markets are in an ebullient expansion mode, and decline when markets are on the way down and investors are seeking out safe havens.
Wednesday saw Joe R Biden sworn in as the 46th President of the United States of America, with a speech highlighting unity and a need for America to mend some bridges both at home and overseas. Equity and currency traders welcomed the new Administration with open arms, as we saw new highs on the S&P 500 and Nasdaq. All eyes are now on Biden’s 100-day agenda, which hopes to deliver aggressive promises for more stimulus and broader vaccine distribution – the two most important ingredients for a 2021 recovery. His final package could be in the region of $1.9 trillion, also known as the ‘American rescue plan’. There is skepticism around the size and structure of the final plan, with a requirement of 10 Republican votes in order to pass it through. This means the final stimulus could be much smaller at circa $1 trillion leaving concerns over the viability of recent stock and currency market optimism and a possible return to safe havens by some quarters. As things stand though, the US Dollar remains on the back foot.
All eyes now turn back over the pond to the Eurozone, where the Central Bank meet today to discuss their latest monetary policy. The Euro has been held back from recent global market rallies, with ongoing concerns that Christine Lagarde could discuss the requirement for further propping up of the Eurozone economy. No one expects the ECB to boost its asset purchasing programme, having only done so in December. However, since that meeting where purchases were increased by €500 billion till March 2022, new coronavirus strains and rising cases have forced countries across the Eurozone to extend their lockdown, suggesting more maybe needed. The big question is whether Lagarde will jawbone the Euro after recently stating that “we monitor very carefully the FX movements, but don’t target it.” Some argue that Europe’s hope for better relations with the new Biden Administration will deter them from talking down the currency, but a weak Euro is important for an export dominant Eurozone economy.
1.3710 - 1.3780 ▲GBP/EUR:
1.1280 - 1.1365 ▲EUR/USD:
1.2080 - 1.2170 ▼GBP/AUD:
1.7510 - 1.7735 ▼