GBP/USD, EUR/GBP Price Analysis & News
GBP Marginally Outperforms on Equity Recovery
Marginal outperformance in the Pound this morning, as the currency tracks the rebound in risk appetite. Alongside this, the well-documented success in the UK’s vaccine rollout program has also played its part in underpinning the currency, particularly against the Euro. That said, aside from the fluctuations in risk sentiment, the main focus for GBP will be on the Bank of England monetary policy report. Since the last MPR back in November, the short term outlook has changed noticeably with the UK in its third lockdown. However, while growth projections are like to be cut on the short horizon, the MPC have acknowledged the diminishing impact lockdowns have had on economic activity.
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Although, perhaps what will garner the most attention will be the BoE’s review of negative interest rates. In turn, the central bank may well find that negative rates are operationally feasible, however, this does not necessarily mean that the central bank will go down this root with Governor Baily himself noting that NIRP is a controversial issue. For now, adjusting asset purchases is the BoE’s main reaction function with OIS markets pushing out the likelihood of negative rates until 2022. My view is that negative rates is very unlikely and will only go down this root as a last resort.
Taking a look at volatility markets, GBP/USD implied vols are slightly firmer, reflecting the upcoming risk event. Although, vols are not showing a notably heightened risk for the Pound, while risk-reversals are also showing a slight premium for calls on the 1-week tenor, which is in line with the recent GBP trend.
FX Volatility Matrix
Source: Refinitiv, DailyFX
EUR/GBP Bias to Fade Rallies Remains
The EUR/GBP outlook remains bearish as bounce-backs continue to be faded. Last week, the ECB stepped up its rhetoric against the Euro, while vaccine disruptions has also reduced the appeal of the Euro. Alongside this, with speculative positioning heavily long the Euro, liquidation risks bode well for further EUR/GBP downside. That said, with equity markets at risk of continued bouts of de-leveraging, EUR/GBP will likely be susceptible for brief bounce-backs and thus allowing for the cross to be faded. Topside resistance situated at 0.8860 and 0.8900-15.
EUR/GBP Chart: Daily Time Frame
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