25/02 – Calmer markets ease sterling lower

25/02 – Calmer markets ease sterling lower

GBP: Sterling unable to hold highs

EUR: Taking a step forward

USD: Sensing weakness


Despite a weaker dollar overnight, GBPUSD has retreated from the highs it saw yesterday. Sterling’s outperformance in the past few weeks has pushed it on a trade-weighted basis to the strongest level since the Brexit referendum back in 2016.

While this is encouraging and there will always be the possibility of further gains, we must point out some obvious issues with the pound at these current levels. While the vaccination effort is powering both the pound and the prospects of an economic recovery currently, its impact will lessen as more and more people are vaccinated and other countries’ efforts catch up with our own.

Similarly, nobody is currently talking about Brexit effects on the UK services sector which remains the number one breadwinner for UK PLC. Lastly, while furlough should be extended next week within the Budget, the can kick of millions of redundancies will have to be dealt with soon.

These are bright days for the pound, and we would not be surprised if clouds darkened in the coming weeks.


The single currency has pushed higher in the past few sessions, aided and abetted by the noises coming out of the Fed and the return to work in China following the Lunar New Year. If EURUSD manages to hold above 1.2190 then we believe investors may look for a run towards the 1.23 mark.

US dollar

Jerome Powell’s 2nd day of testimony to Congress was very much like his first; an emphasis on keeping interest rates low until inflation is meaningfully and consistently trading north of the 2% mark.

This emphasis continues to keep the USD from meaningfully rallying with only tomorrow’s PCE inflation measure a possible fly in the ointment; a higher number here could prompt the market to chase risk lower once again.

For now, given the movement that we have seen in US bond yields we would expect to see markets spend a few days, maybe a week, work out exactly how it feels about US Treasuries at 1.4%. With a supportive Fed, we expect the dollar to remain primed for selling. 


For the first time in my memory, a central bank will have its remit changed to specifically include “the impact on the housing market” when making its monetary policy decisions. The New Zealand Finance Minister announced last night that the RBNZ will have to consider the housing market in all its policy announcements which to me seems like a government official passing the buck to the central bank given the government’s inability or unwillingness to deflate a housing bubble.

The NZD was not affected by the announcement but this new measure may make interest rate decisions a lot more volatile for the currency.

Market rates

Today’s interbank rates at 08:22 against sterling. Movement vs yesterday.

Euro€1.159 ↓
US dollar$1.414 ↓
Australian dollar$1.770 ↓
South African randR20.60 ↓
Japanese yen¥150.0 ↑

Have a great day.

Thanks for subscribing to our market reports!

You've been added to our Chief Economist's mailing list for his morning reports.

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.