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25 Jan 2021
3 min read

GBP/USD Eases Off Intraday Highs, European Markets Turn Lower

GBP/USD Eases Off Intraday Highs, European Markets Turn Lower

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Key Takeaways

  • Negative economic data emerges from the UK
  • Impeachment proceedings set to start in the US

The GBP/USD pair surrendered the early gains on Monday amid continued concerns about the economic impact of the new variant of Covid-19. In the early hours of European trading, the Sterling reached a daily high of 1.3723 against the US dollar. The pair was later struggling to preserve the buying momentum and depreciated to a low of 1.3666. Adding to the downside pressure was also the renewed modest pickup in USD demand. The GBP/USD trend has been marked by a strong buying momentum in the last four months as the pair has appreciated by nearly 7.00% since Oct 1.

The pound’s fluctuations were aided by Friday’s disappointing UK macro data, Retail Sales report, and PMI data. The UK PMI showed a sharp decline in Britain’s economy for January as the country entered into a lockdown with harsher restrictions. Manufacturing PMI missed estimates with 52.9 in January. Services PMI also contracted to 38.8 for the same period. Retail sales arrived at 0.3% for December versus the expected 1.2%. The results added to fears that the country may go through a double-dip recession. The pound slipped on Friday and closed negative. The disappointing data report along with new confirmed cases of the new UK variant held pound buyers from placing more aggressive bets on the UK currency on Monday.

Stimulus Package Negotiations in the Pipeline

At the other end of the pair, the US dollar is seeing a mild wave of buying as traders and investors eye the developments over the anticipated $1.9tn stimulus package. President Joe Biden’s proposed package is expected to go through negotiations between Democrats and Republicans in the next two weeks. Moreover, congressional leaders will need to decide when to proceed with the impeachment trial of former President Donald Trump. Lawmakers have agreed to start the trial during the week starting on Feb 8.

The retreat from the daily tops on Monday in the GBP/USD pair comes alongside a wave of depreciation across European markets. The Monday open saw major indexes flashing green. However, as the day progressed, market participants turned against the uplifting of the equity markets and erased the early gains. The German DAX, the French CAC40, and the UK’s FTSE100 are all showing modest losses while US stock futures rise ahead of a slate of earnings reports from the tech sector. Tech giants are in action this week as the market will be watching for the reports from Apple, Tesla, and Facebook on Wednesday.

Also on Wednesday, the US Federal Open Market Committee will conclude its first meeting of 2021. The market does not expect shifts in policy stance.

Elsewhere, in the coming week, investors will be monitoring the progress on the vaccine rollout and treatment as most European countries remain under a lockdown. The WHO is expected to publish a report today that warns developed economies about the high risk of severe pandemic-related economic hits unless they find ways to help developing countries in their vaccine distribution programs.

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