Daily Currency Update

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Vaccination nationalism comes into the spotlight

GBP - British Pound

Boris Johnson, UK Prime Minister, has responded to comments earlier this week from European Council President Charles Michel’s comments on the UKs vaccine exports. Johnson has been firm in his stance that the UK has never blocked any vaccine exports and he “opposes vaccine nationalism in all its forms.” The spat risks souring relations between the EU and its former member state, who are already embroiled in a wider dispute over Brexit trade rules that could end up in legal action.

Sterling doesn't have a whole lot more to play for this week and will probably take its direction from news with other currencies. Andrew Bailey's comments discussed at the start of this week have buoyed the currency, after the market perceived a reducing in the probability that the Bank of England will ever send interest rates into negative territory. In fact, as inflation picks up, quite the contrary maybe seen in the coming months and years. GBPUSD has crawled over the 1.39 handle, with 1.40 now in it's sights again. The last two weeks have seen an almost 5 cent swing in the currency pair, suggesting that volatility is still rife and many risks are still in play.

Key Movers

US CPI data took centre stage yesterday as the market looked for signs of inflationary pressures on the US economy, especially after the announcement of the $1.9 trillion stimulus package over the weekend from President Joe Biden's administration.

The figures were as forecasted, which shows that inflation is very much back, but not as quickly as the markets feared. US consumer prices grew 0.4% in the month of February, which was in line with expectations. Core prices on the other hand rose only 0.1% against 0.2% forecast. US equities were on the rise as the rotation into value stocks resumed after the news, while the US dollar weakened, pushing the pound and euro stronger.

The European Central Bank's rate decision is by far this week's biggest event risk. All eyes are on ECB President Lagarde and her economic projections which will be updated. Here are the few things we know – vaccine rollout in the Eurozone is slower than the US, more restrictions remain in place, the currency is strong and the ECB is more concerned about the rise in yields than the US Federal Reserve.

Eurozone economic data has been mixed and there could be contraction in this first quarter. With that said, the global economy is recovering, more people are getting vaccinated with each passing day and the outlook is bright. So, the big question for the ECB today is whether they will look past near term uncertainties. There are two scenarios that could play with the euro - (1) more emphasis on market volatility and increase in bond purchases from the ECB will see the euro weaken and EURUSD hit possible fresh lows (2) if the ECB maintain an air of optimism and suggest that any move taken will not be followed by further action, EURUSD could return to 1.20 and GBPEUR push lower.

Expected Ranges

GBP/USD: 1.3910 - 1.3990 ▲

GBP/EUR: 1.1610 - 1.1685 ▼

EUR/USD: 1.1930 - 1.2010 ▲

GBP/AUD: 1.7780 - 1.8120 ▼