The road out of lockdown

The road out of lockdown

The British currency had another strong week, rising against a host of major currency peers. Versus the Euro, Sterling's risen for six consecutive weeks to achieve 11-month highs, while also making gains against the Dollar to climb to near three-year highs of 1.40. Broad-based Dollar weakness has contributed towards GBP/USD exchange rate strength, along with a surge in British Consumer Confidence due to the vaccine rollout and a jump in manufacturing and service sector activity. In the week ahead, one of the main events that could impact the Pound will be Prime Minister Boris Johnson's announcement regarding the UK's lockdown exit. A slow return to normal could put a slight dampener on Pound sentiment, whereas a speedier return to normalcy—and therefore economic recovery—could further bolster the British currency. Additionally, influential labour market data due out and some comments from Bank of England representatives could be significant for the GBP exchange rate.

Ignoring inflation 

The Euro hit 11-month lows versus the Pound last week, and there's the potential for further losses as the month comes to a close. As the UK economic outlook brightens with the vaccine rollout continuing at a faster pace than the rest of Europe, the GBP/EUR exchange rate could be bolstered further against the common currency, particularly if Boris Johnson announces a quick exit out of lockdown. In the Eurozone last week, the European Central Bank said it would hold its stimulus steady, ignoring any inflation increases until they're sustained in the long-term, rather than just the short, following the quickest rise in consumer prices in more than ten years in January. Some analysts suggest the central bank won't look to change its monetary policy for the rest of the year. This week, there's a mixture of influential Eurozone and Germanth—the currency bloc's largest economy—figures due for release. A measure of German business sentiment will be out at the start of the week, followed by German GDP Growth Rate and Consumer Confidence stats later in the week. Meanwhile, for the Eurozone as a whole, Inflation Rate stats will be revealed, as well as Consumer Confidence, Economic Sentiment, and Industrial Sentiment numbers which are expected to make some small improvement. Additionally, European Central Bank President Christine Lagarde will be speaking on Monday afternoon—followed by some other central banker speeches later in the week—which could have some moderate influence over the Euro.

‘Take some time’

The US Dollar ended the week on the back foot after the Pound breached the 1.40 level for the first time since April 2018. The most influential US data will come at the end of this week, in the form of Durable Goods Orders and Personal Core Expenditure Price Index stats. Durable Goods Orders, which measures manufacturing orders, is expected to climb by 1.1% in January, following the previous month's 0.2% reading. Meanwhile, the core prices people paid for goods in January is expected to have slipped slightly lower, to 1.4% from 1.5% in December on the year. Additionally, the University of Michigan Consumer Sentiment stat is forecast to come in at 76.5 in February, down from January's more robust 79.0. The US will also release its budget plan for 2022, and Federal Reserve Chair Jerome Powell will head to Capitol Hill for the latest Monetary Policy Report. Last week, the central bank suggested that the US economy was 'far from' where it wants the recovery to be, with an aim for a 'broad and inclusive' labour market and inflation hitting at least 2.0%. Furthermore, the central bank suggested it would probably 'take some time for substantial further progress to be achieved', cooling any expectations for monetary policy changes in the near-term.

RBNZ rate decision ahead

Last week, the Pound to Australian Dollar exchange rate climbed by around 1.0% but gave some of its gains away on Friday. The Pound to New Zealand Dollar exchange rate traded similarly, as a shift of flow came out of the US Dollar and into other G10 majors; both the Aussie and Kiwi climbed versus the US Dollar. This week, the Reserve Bank of New Zealand will announce its latest interest rate decision, followed by a press conference with central bank Governor Adrian Orr. Market expectations are for the interest rate decision to show rates will remain on hold at 0.25%. Additionally, for New Zealand this week, Retail Sales stats for Q4 will be released, as well as Balance of Trade figures. Meanwhile, in Australia, the Q4 Wage Price Index reading will reach markets with expectations for a slight fall from 1.4% to 1.1%. Towards the end of the week, manufacturing stats from two different sources will be released and could provide some moderate influence on the AUD exchange rate.

Four-month high

The Canadian Dollar reached its strongest against the US Dollar in only four-weeks last Friday. The Pound to Canadian Dollar exchange rate finished the week around 0.5% higher. Last week saw Canadian payrolls data shed more jobs—the data has only shown one increase in the previous five months. It's a quiet week for the Canadian data calendar, with only the moderately influential Average Weekly Earnings and some low-tier data due for release. However, Tiff Macklem, the Bank of Canada Governor, will be making a speech this week, which could also have some sway on the CAD exchange rate.