21/01 – Can sterling hold its ground through data?

Jeremy Thomson-Cook
Jeremy Thomson-Cook 21 January 2021

GBP: Breaking higher but data a risk

EUR: ECB meeting due at 12.45

USD: Biden in, now to stimulus

Sterling

GBP broke through its post-Brexit deal highs against the USD yesterday amid a broad swell of sterling strength. The origins of the move are up for debate; some pinned it on the slightly stronger inflation numbers seen yesterday morning, some on the knowledge that the UK vaccination program is currency running at a much faster pace than most other developed nations, some had it down to the fact that it was simply sterling’s time to recover after a long period of declines.

We are happy to see it and hope that the correlation of sterling with risk holds up as a stronger global recovery will be occurring if sterling is rising.

We do have one caveat however and that is the economic data due in the coming weeks. Tomorrow’s retail sales figures and initial confidence numbers from businesses in the services, manufacturing and construction sectors may tell of an economy struggling under Covid-19 and underprepared for the changes of Brexit.

In other words, there may be a time limit on this recent sterling strength.

Euro

We expect the euro to remain fairly quiet today until the ECB meeting begins at 12.45 GMT and the subsequent press conference at 13.30. It is our expectation that the communications from the central bank on the single currency and its current strength will not be enough to prevent investors from trying to move the EUR higher in the coming sessions.

US dollar

With Biden in the White House now, we can but hope that US politics becomes a little more boring. That is not to say that the decisions made in the US Capitol are not important anymore but hysterics are no longer then language of Washington DC.

We expect that stimulus conversations will ramp up in the coming days with the Democrats keen to extract every gramme of good will while the inauguration remains fresh in everyone’s minds. Today’s initial jobless claims figures will likely focus a couple of minds at 13.30.

Elsewhere

Strong employment fundamentals in Australia pushed the AUD higher overnight as analysts drive forward the belief that we could see the Reserve Bank of Australia end its asset purchase program as soon as April. Such a move would be a staggering sign off from the pandemic but may only happen truly once China’s ship is much more in order than it currently is.

Have a great day.