05/02 – GBP rises, market bets against BOE easing

05/02 – GBP rises, market bets against BOE easing

GBP: Bank of England limits chances of negative rates

EUR: Hits 8 month low against sterling

USD: Jobs news at 1.30pm


Sterling played out pretty much as we expected yesterday; dipping into the Bank of England before rallying higher. While the meeting showed a central bank that remains uncertain on the UK’s recovery and unwilling to rule out any change to its policy response including cutting interest rates below 0%, markets were quite happy to price out the chances of negative rates in the coming quarters with prices now showing a possible hike by this time next year. We think that to be overexuberant.

While the Bank believes that the economy will rapidly recover to pre-GDP levels through 2021 it has cut its growth expectations for the year from 7.5% to 5%. More crucially for us, the real driver of economic growth in the coming months will not be Bank of England policy but more what Chancellor Sunak decides to announce at his upcoming Budget. We know that UK businesses and their employees will need injections of support long after they may have had a vaccine injection.

Should markets continue to move equity risk higher we see little reason why sterling can’t follow in the short term.


European retail sales figures outperformed our expectations yesterday but a deep dip in German factory orders this morning has exacerbated the weakness in the single currency with GBPEUR now at the highest level since May last year.

The vaccine trade – the idea that currencies that have viable and effective vaccine plans should outperform those that don’t – is still hammering the euro too. This will not last forever as Europe will eventually get its act together but for now is adding to the feeling that the tailwind that drove Europe in to 2021 has not carried it along but instead knocked it over.

US dollar

It is Jobs Day in America and while the new President would never say he was hoping for fewer jobs to be created, it would make his stimulus plans a lot easier. Data showing a rebound in the economic strength of the US economy has called into question the need for such a large spending package and this has triggered higher US bond yields and a stronger USD.

Market expect payrolls to add only 105,000 jobs which is a low bar to beat for an economy the size of the United States and should wider labour market stats like the participation rate recover and wages show lower income workers are gaining roles, then we could see a strong end to the weekend for the US dollar.


The South African rand is enjoying its best week for a couple of months as investors back the currency ahead of the latest Budget estimates. Hopes are that the South African government will have collected a lot more tax revenue than their original estimates, allowing for more spending and showing an underlying level of economic strength that is higher than previously forecast.

Have a great day and a better weekend.

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Jeremy Thomson-Cook

Jeremy Thomson-Cook

Jeremy has over 13 years experience working in the FX industry. As a specialist in political risk mitigation and currency hedging, he regularly advises clients on the day-to-day moves of the markets and the implications of fiscal and monetary policy on international businesses.