GBP: Is the recovery already priced in?

EUR: Still looking strong

USD: Doubling of CGT greeted poorly

Sterling

It’s going to be a quiet week for sterling with limited data due and, so far, no speakers from the Bank of England scheduled to speak. GBP’s blip higher last week was driven by improving data – strong retail sales, falling unemployment, rising inflation and more positive PMI sentiment indices – exactly the kind of news you want to see to prompt a stronger currency.

The dichotomy of rising Covid-19 cases globally but a UK that is enjoying reopened bars, restaurants and shops should continue to work in the pounds favour should the vaccination program continue to progress, the hospitalisation rate remain low and border controls stay in place to eliminate the risk of further outbreaks.

Sterling should have more luck against the USD this week than the euro and 1.40 looks very much in reach.

Euro

Despite data this week likely to confirm that the Eurozone has fallen into its second technical recession in 12 months, markets will be paying little attention to that. The ongoing economic improvement in the Eurozone was mirrored in Friday’s sentiment indexes and today’s German IFO should echo those findings.

While Eurozone inflation rising later in the week (Friday) may make the headlines, we expect markets to explain it away as a base effect. That does not mean that the euro may not rally however, and it has started the week strongly on a broader increase in risk sentiment.

Political news also has the possibility of helping the euro with gains for the Green party in Germany the most likely driver of EUR appreciation.

US dollar

The next few sessions are important for the US dollar and come after a couple of poor weeks for the greenback as markets have once again started to swallow the narrative that the Federal Reserve isn’t going to raise interest rates anytime soon, that the US economy is no longer outperforming at quite the speed it used to and that the economics of the Biden spending plans will start to weigh eventually.

Wednesday is probably the big day with a Fed meeting and President Biden’s first address to a joint session of Congress. If Biden heightens the rhetoric or expounds on his tax plans, we could be in a for a volatile day on Thursday with the USD likely losing ground as investors shift money overseas.

The USD has started the week breaking lower across the board.

Elsewhere

As we touched on last week, iron ore price gains are helping keep the AUD bid with their control over the virus also allowing the market to see some economic divergence. We expect both AUD and NZD to remain strong in the coming weeks.

Market reports

Today’s interbank rates at 08:21 against sterling. Movement vs yesterday.

Euro	€1.151 ↓
US dollar	$1.392 ↑
Australian dollar	$1.790 ↓
South African rand	R19.83 ↓
Japanese yen	¥149.9 ↓

Have a great day everyone.