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GBP on the bounce on Monday

25 Jan 2021

On Monday, the British Pound was trading higher than the previous week but was hindered by loss of a steam in the London session. The Sterling went through a bullish session for Asian equities last week. 

Brexit is no longer the main driver, helping the Sterling correlating with broader investor sentiment. Traders are now looking to see how it will perform this week, which could rest with the macro-economic backdrop. 

Economist said, “Market sentiment has started the week on a positive note with most Asian equity markets trading higher this morning. This follows US equity markets reaching new highs last week on expectations that a new Biden administration and Democrat-controlled Congress will lead to significant new fiscal stimulus.” 

The Pound-to-Euro exchange rate was being traded at 1.1258 at the start of the week, whereas the Pound-to-Dollar exchange rate trades at 1.3707.

Moreover, the GBP/CAD spot rate was at 1.7423. The Pound-to-Canadian Dollar rate may find challenges to extend its gains this week.

“The current unwind is likely a part of the normal ebb and flow from a market evaluating near term risks against a more optimistic long-term outlook. Namely, further stimulus and an eventual return-to-normal is offset by a temporary increase in containment measures in various parts of the world,” strategists pointed out. 

On the other hand, the Euro-to-Dollar exchange rate is being traded at 1.2160, with several companies and households now back in lockdown. On Thursday, European Central Bank (ECB) President Christine Lagarde noted that the bank may not need to make use of the new money allocated to the program that was made for pandemic-inspired quantitative easing .

“The EUR is now more clearly forming a bullish reversal from mid-month as it forms a solid upward trend since Wednesday’s cross below 1.21 that is putting it on track to test the 1.22 level.”