Daily Currency Update

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Sterling soars on upbeat Bailey

GBP - British Pound

The pound rallied yesterday as Bank of England Governor Andrew Bailey gave an upbeat assessment of the potential for a rapid economic recovery from the Covid-19 crisis. At its latest policy decision there was no change in interest rates from their all-time low level of 0.1%. Also, there were no amendments to the bank’s asset purchase programme however the upbeat tone from Bailey focused on the UK's pace of coronavirus vaccinations which he praised as being key to the UK bouncing back from its worst economic slump in over 300 years. The UK economy is expected to contract by 4.2% in the first quarter of 2021 however a strong rebound is expected from Q2 onwards as more and more people get a jab and consumer confidence improves, along with the weather. Bailey said he expected the UK economy to be back to pre-Covid levels by the end of this year rather than early 2022 which had been the previous forecast. Despite an unemployment rate that should tick towards 8% as the governments furlough scheme is unwound pent up consumer demand for spending in the hospitality sector as well as the high street should provide a welcome tailwind to the recovery.

GBP/EUR has broken above 1.14 for the first time since May last year and GBP/USD pushed up from a low of around 1.3565 and has just reclaimed the 1.37 handle this morning.

Key Movers

Yesterday saw more positive data from the States with weekly unemployment claims coming in better than expected at 779k, less than the 828k forecast. Factory Orders also beat estimates adding to an improving picture of the US economy. Today’s key event is the monthly US jobs report which is due at lunchtime with the headline Non-Farm Payrolls figure predicted to show around 85k added to the workforce for January.

Those expecting a strong recovery in the eurozone and therefore a strong euro may be reassessing those positions now with EUR/USD breaking below 1.20 yesterday and EUR/GBP below 0.88 both key levels that it had managed to hold for the past week despite several attempts to break through. With these levels broken and a sluggish pace of vaccinations in the bloc we could see further euro weakness over the remainder of winter as it lags behind the UK and the US's vaccination programmes which have injected 15.5% and 10.2% of the population respectively. There is little data from the EZ today so it will be all eyes on US employment data this lunchtime. EUR/USD sits at 1.1980 with USD/JPY at 105.4

Expected Ranges

GBP/USD: 1.3625 - 1.3760 ▲

GBP/EUR: 1.1370 - 1.15 ▲

GBP/AUD: 1.7885 - 1.8030 ▲

GBP/NZD: 1.9010 - 1.92 ▲

GBP/CAD: 1.7470 - 1.76 ▲