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Vaccine optimism ebbs

Optimism ebbs 

Last week, Sterling took a 2.0% dive on a trade-weighted basis in its worst week since December. The Pound has been softening against a host of other majors as Britain’s vaccination story optimism appears to be ebbing. The number of vaccines given slowed over the bank holiday weekend after outperforming previous expectations. The quick vaccine rollout coupled with some positive data releases offered Sterling some solid support. Still, if the glimmer of the vaccine news is ebbing, mainly on supply concerns and recent associations with clotting, the Pound could be more reliant on fresh data releases moving forwards. With the economy reopening further from today, economic data may begin to show improvements that could be positive for the Pound. Meanwhile, in Brexit news, it appears as if the UK and EU are on the cusp of agreeing to trade rules for Northern Ireland. In the week ahead, UK growth data will be released, as well as construction, manufacturing, and industrial sector numbers. Additionally, the Bank of England will release its latest credit conditions survey on Thursday.

A glimmer of growth 

The Euro marked its best-performing week in 2021 last week on a trade-weighted basis. Some recently renewed optimism regarding the Eurozone’s growth prospects alongside its vaccination potential has helped support the common currency against some other majors, such as the Pound and the US Dollar. However, with many Europeans still hesitant over the AstraZeneca vaccine, there’s the possibility the inoculation programme won’t pick up as much as expectations hope. If this is the case, Eurozone growth may be delayed, while nations take measures to protect against further Covid waves. Sterling climbed by just over 5.0% in Q1, but gave up gains of nearly 2.5% last week as it softened against other currency majors. Economic sentiment indexes will be out in the week ahead, as well as industrial and inflation figures. Meanwhile, several European Central Bank representatives will speak throughout the week, ahead of the Eurogroup video conference on Friday. 

'Inflection point' 

Sterling climbed by 1.09% in Q1 against the US Dollar, after retreating from highs of 1.4237. The GBP/USD exchange rate had risen by 10% since November, and while some factors caused depreciation—such as concerns over the AstraZeneca vaccine—some profit-taking could have also caused some softness. A speech from Federal Reserve Chairman Jerome Powell on CBS struck an upbeat to­­ne, with the central banker suggesting the US was at an 'inflection point', where it was likely jobs and growth could both accelerate. Recent Fed meeting minutes showed that policymakers have no intention of easing their ultra-supportive monetary policy approach until the economy begins to show progress in both inflation and labour market stats. One of the significant events in the week ahead will be the US inflation data release, expected to show a jump in consumer prices. Additionally, sentiment and retail data will also be out and could influence the US Dollar.

Addressing house prices 

In Q1, the Pound managed to climb by around 2.0% versus the Australian Dollar, but fell by around 1.0% last week. Meanwhile, against the New Zealand Dollar, Sterling managed to gain by approximately 3.9% in Q1, before dropping about 1.0% last week. The Aussie Dollar softened against other currency majors such as the US Dollar as the Reserve Bank of Australia indicated in its financial stability report that it was now monitoring house prices after dramatic rises in recent months. The central bank kept interest rates on hold at 0.10%, but questions over whether the central bank could maintain lower rates until 2024 were in the spotlight. Meanwhile, the Reserve Bank of New Zealand has taken a dovish stance which may continue putting pressure on the Kiwi Dollar, particularly against safe-haven assets. Since the end of February, the New Zealand Dollar has slipped against both the US Dollar and the Japanese Yen—toppling approximately 6.0% against USD and around 4.4% versus JPY while the RBNZ addressed housing issues.

In the week ahead, New Zealand card retail spending stats will be released, as well as manufacturing and services data. The other main event will be the Reserve Bank of New Zealand’s interest rate decision on Wednesday. Meanwhile, Australian consumer sentiment figures will be released, as well as inflation data, and labour market stats. The Unemployment Rate is expected to slide slightly lower, while 35K jobs are forecast to have been filled in March.

Quiet week for economic data 

The Canadian Dollar gained some popularity last week after the economy showed an upswing in jobs data, despite being behind the US in its vaccine ambitions. However, with restrictive measures in place to protect against a third wave, there could be some more headwinds ahead. Meanwhile, some analysts suggest oil prices could begin to strengthen yet again, which could support the Loonie exchange rate. The Pound ended Q1 around 0.33% lower, and last week recorded a 1.2% decline. Today, the Business Outlook Survey Indicator will be released, but the rest of the week is relatively quiet by way of domestic data.