The British Pound is expected to build on its recent gains over the coming days’ thanks to positive technical momentum and improved fundamental underpinnings that include the country’s rapid vaccine rollout and expectations for a sharp pick-up in economic growth.
British Pound’s Recent Gains
The Pound advanced a third of a percent against the U.S. Dollar at the start of the new week to quote above 1.39 for the first time in two years, while the UK unit advanced a quarter of a percent against the Euro to quote at 1.1467.
Gains extend into Tuesday with GBP/USD up at 1.3928 and GBP/EUR at 1.176. The additional gains mean the Pound is the second-best performing major currency of 2021 with only the oil-fuelled Norwegian Krone outperforming.
“The British Pound continues to trend higher against many currency peers as the UK looks set to ease virus-led restrictions on completion of vaccination targets. GBP/USD looks poised to test the $1.40 threshold this week, whilst GBP/EUR could stretch beyond €1.15,” says George Vessey, UK Currency Strategist at Western Union Business Solutions.
Owing to the impressive gains registered during the past month, Sterling has now easily outstripped the average forecast targets set by the world’s leading institutional analysts. Therefore, the performance is seen by some wrong-footed analysts as being a case of ‘too much, too soon’, with many retaining a skeptical slant on the currency owing to an enduring focus on the negatives associated with Brexit.
“The successful vaccination campaign in the UK is fueling hopes for a quick recovery and boosting the pound. In the short term, the appreciation trend could continue, but as soon as the effects of the Brexit become more apparent, the trend is likely to turn again,” says Thu Lan Nguyen, FX and EM Analyst at Commerzbank.
Nevertheless, tactical and technical analysts maintain a view that the trend can extend near-term and that standing in its way would prove futile.
Traders at JP Morgan’s currency desk in London say the next big upside level for the GBP/USD exchange rate is 1.4000, while for the GBP/EUR exchange rate it is 1.1441 and then 1.1534 that are eyed as upside targets on a tactical basis.
“Still feel pretty good about sterling at this juncture as we open today testing the1.3885/95 level, with vaccination data continuing to impress as the UK hits the 15 million milestone over the weekend,” says a note from the JP Morgan dealing desk to clients.
Should Pound Sterling encounter weakness, initial support for GBP/USD is at 1.3800/10 and then 1.3750/60 says JP Morgan.
Support for GBP/EUR is meanwhile eyed at 1.1370 ahead of 1.1274.
“GBP/USD trending in a consistent ascending channel here. Due a pullback before long, but just like last weeks move lower, it provides another potential opportunity to ride the wave. Need to break below 1.3773 to negate short-term bullish outlook,” says Joshua Mahony, Senior Market Analyst at IG.
“Unless something gloomy comes along, sentiment has turned wildly risk-on, as we see from equity in dices and maybe the sterling rally, too. What’s behind it are rising vaccinations, the prospect of the Biden recovery spending, and, dare we say it, Draghi in office in Italy and Trump out of office in the US. The reflation trade is here and dancing in the streets,” says Barbara Rockefeller, Chief Economist at Rockefeller Treasury Services.