GBPEUR retreats from 13 month high

Sterling

The UK will continue with its plans to reopen its economy from next Monday with pubs, restaurants and non-essential shops reopening for the first time since December. While a decision is yet to emerge on international travel, the news that the vaccination effort continues apace and that hospitalisation rates are close to the levels seen last summer, the news is clearly good.

How this translates into sterling is an interesting question. The disparity between covid controls in the UK and Europe through the past few months has been stark and is something that has worked in GBPEUR’s favour ever since. The pair saw fresh highs yesterday above 1.18 albeit in thin markets and has since calmed down. GBPUSD looks like it wants a run towards the 1.40 level, and we would not be surprised if that line in the sand was once again tested in the coming week or so.

Euro

The single currency fell to its lowest level in 13 months against the pound yesterday as investors once again seized on the divergence in fortunes of the UK and Europe over vaccination and Covid-19 control. That trend is not going anywhere yet, and fears that the UK may not open its borders to allow non-essential travel to Europe will be another negative factor for the pair moving forward.

I hope I get to have a week in Mallorca as planned, and the euro should be praying for that too.


US dollar

It is all about US outperformance this morning but while the economic data from the world’s most powerful economy is indicating everything is full steam ahead, the dollar is failing to benefit. Indeed, despite strong services sector numbers yesterday and Friday’s much better than forecast jobs report, investors have been unable to push US yields higher and the USD has failed to leap higher as well.

A continuation of rising stock markets – as was seen in the US yesterday and with Europe catching up today – alongside weakness in US bond yields is a market that would likely see the USD give back some of the gains that is made in the first three months of this year.

The key ingredient for that, however, remains strong data elsewhere; this is a global story not just simply one from the US as without follow through elsewhere, the dollar may once again strengthen on wider investor nerves.


Elsewhere

AUD has picked itself up after a tough few sessions in the aftermath of the Reserve Bank of Australia meeting overnight that saw all the main monetary policy levers untouched by policymakers. AUD may be one of the most interesting currencies out there at the moment given its ties to China and the commodity cycle. For now, the story it is telling us is one of uncertainty, but it will likely be one of the first positive reactants should we move into a cycle of USD weakness.

Have a great day.

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