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ACM Update Monday 12th April 2021

“It has been a rollercoaster of a week” is often an over-used term in the FX industry. But with the post-Easter movements seen last week, a ski-slope would probably have been more of an accurate representation of the trend for GBP against most majors. With the focus still on lockdowns & vaccinations, what will a week of predominantly US events do to exchange rates?

Whilst Monday was a bank holiday in the UK and most of Europe for Easter, that didn’t stop GBP-EUR reaching levels last seen pre-pandemic in February 2020. The main reason for the boost was the continued emergence of the UK from its latest lockdown, with Boris Johnson announcing that we are still on track for the next stage of re-opening on Monday 12th April (today).

Shops, hairdressers, beauty salons, pubs, restaurants, and gyms will all be reopening in England as restrictions continue to be eased. This is in stark contrast to many European countries who are tightening measures, hence the rapid appreciation of GBP on Monday.

Such is the importance of the vaccination rollout and supply system, that GBP lost all of the recent gains against the Euro and fell to a six-week low by the end of the week, falling over 2.5% in the process. The chart below displays the move seen during the week.

One-way traffic after Easter for Sterling-Euro last week.

Such movements illustrate the importance of having the appropriate risk management techniques in place for your currency purchases. Market orders were incredibly beneficial to some clients early in the week, with the 24-hour coverage meaning some were able to take advantage of the peak on Monday, despite UK markets not being open. Equally, clients with purchases later in the month have been able to forward buy their currency, to guarantee their costs for a future date. For more information on these tools (and others), reach out to the team and we can establish the best approach for you.

By the time all Easter eggs were finished and markets reopened on Tuesday, traders returned to their positions and closed out the gains made by GBP in Q1, to take profits as the new quarter began. This led to strong GBP selling early in the week.

Another factor impacting the pound was the concern over possible side-effects of the AstraZeneca vaccine. As mentioned many times in recent weeks, the positivity surrounding GBP is so dependent on the vaccine rollout continuing at pace that this gave markets a real wobble, leading to further drops mid-week. The ongoing rumblings of supply issues really haven’t helped matters either.

On the other side of the channel, the Eurozone has been enjoying its best week for a while against both GBP and the Dollar. A Bloomberg report on Tuesday containing comments from the EU, stated that most member states will have “sufficient vaccine supplies to immunise the majority of people by the end of June”. This is based on 70 million doses of the AstraZeneca vaccine though, so as with the UK, supply and the safety of the vaccine is still a major factor. Short-term though, the report drove the Euro favourably.

As per their meeting minutes released on Thursday, the ECB still have concerns about the slow pace of the vaccine rollout in Europe and the subsequent impact on economic recovery. Committee members highlighted that “weakness in activity might continue well into the second quarter and beyond”. Bond-buying was also discussed, as the 1.85 trillion EUR Pandemic Emergency Purchase Programme (PEPP) continues to try and give some stability. German PMI data had also provided a welcome boost for the single currency on Wednesday morning, beating expectations.

With a lot of action around the Dollar recently, this was a more subdued week for the greenback. Minutes from the most recent Federal Reserve meeting in March showed the Fed are very much still in “wait and see” mode for now. They did note that the economy was growing “substantially” but needed to see much more progress before any policy changes. The meeting took place prior to last week’s non-farm payrolls figure which was indeed “substantial” with 916,000 jobs added to the economy. Will April see over a million jobs added in the month? President Biden’s $1.5trillion budget for the coming fiscal year certainly hopes so. Recent GBP-USD moves are shown in the chart below.

A negative week for GBP against the Dollar also.

Onto the week ahead now and being the “middle week” of the month, significant data releases are a little lighter. The majority of the higher-profile events will be state-side and spread throughout the week. It goes without saying though that a lot of the focus will still remain on vaccinations, supply of vaccines, lockdowns easing and infection rates.

The week starts on a sombre note after the death of Prince Philip, the Duke of Edinburgh, on Friday. The UK Parliament will be recalled a day early from their Easter break, to allow MP’s to pay tribute, with Boris Johnson leading proceedings as the UK starts eight days of national mourning.

Jerome Powell (Chairman of the Federal Reserve) is a busy man in the week ahead, with several speeches, conferences and TV interviews spread throughout the week. He has kicked off the week already with an interview on CBS on Sunday night, still keeping all options open and keeping markets guessing on inflation and interest rate policies. These will again be the key points to watch out for during his events this week, as well as any narrative regarding the overall recovery of the US economy.

Tuesday morning is the major focus for UK data, with manufacturing, trade balance, construction and GDP figures all released first thing. It will be interesting to see how UK data has been performing as restrictions slowly start to ease and the “pent-up demand” gets released into the economy.

With inflation remaining in the crosshairs of the Federal Reserve, Tuesday lunchtime’s release of the March figure could provide further clues as to the upcoming approach to combat it (or not as the case may be). The 30-year bond auction from the US is likely to get more attention than usual also. US retail sales also make an appearance on Thursday afternoon.

General expectations are for GBP to remain strong in Q2, despite the slight blip last week. If the lockdowns keep continuing in Europe then we could see further gains to add to the circa 6.5% move for GBP-Euro seen in Q1. The Dollar is likely to be faring better than the Euro, though it remains to be seen if the Biden stimulus package will be enough to overcome the positivity behind GBP.

If you have requirements coming up, please do reach out to the team to discuss them with us, as we have a variety of different tools to help. Given the movements over recent weeks, working with us closely has been incredibly beneficial for some clients of late. We look forward to hearing from you.

Stay safe.

written by

David Comber

David Comber is a Senior FX Trader at Aston Currency Management