The news that new UK coronavirus infections dropped below 10,000 for the first time since early October added to Pound optimism. Vaccination progress also added to speculation that lockdown restrictions would soon be eased despite Boris Johnson’s words of caution. The expectations are that the UK will recover sooner than Europe and strength in global risk appetite also continued to provide underlying support to Sterling. The FTSE 100 index registered strong gains boosting expectations that the UK market was securing strong capital inflows from international investors amid a re-rating of the UK economy. The Pound settled above 1.3900 against the Dollar and hovered near 1.1465 on the Euro.
Risk appetite remains robust this morning, providing Sterling support and impetus to push near to 1.3950 against the Dollar and 1.1470 against the Euro. Global risk conditions will remain significant to sentiment.
The dollar overall remained on the defensive with an on-going flow of funds into risk assets which undermined demand in the US currency as commodity currencies posted further gains.
There were some reservations over US-China tensions amid reports that China would look to block rare-earth exports to the US, although there was no significant impact on markets as US equity futures continued to push higher.
Overall trading volumes were limited given the US market holiday. Markets were waiting for the US retail sales data tomorrow amid the on-going debate of US trends after notably weak US data for the December data. There will also be a further debate whether a strong US recovery is likely to strengthen or weaken the US currency.
The Euro could soon chart a breakout against the Dollar, as risk remains bid on coronavirus vaccine optimism.
A continued risk-on mood during the European session could soon push the single currency well above 1.2150 mark. The sustainability of the gains could also depend on the Eurozone and German beating estimates with the data scheduled for release later today. Eurozone's preliminary Gross Domestic Product (GDP) reading for Q4 2020 is expected to show the economy contracted by 0.7 quarter-on-quarter and 5.1% year-on-year in the final three months of 2020. A miss on expectations however, could draw offers for the single currency should the forward-looking German Zew Survey indices for the Current Situation and Economic Sentiment paint a gloomy picture of the Eurozone's largest economy.
As of writing, the Euro currently trades around the 1.2140 mark against its US counterpart.
Posted in Daily Market News on Feb 16 2021