GBP/USD, EUR/GBP Price Analysis & News

• GBP Marginally Outperforms on Equity Recovery
• EUR/GBP Bias to Fade Rallies Remains

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.

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.

Negative Interest Rates - Can They Stimulate The Economy?

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 (UUP).

FX Volatility Matrix

Source: Refinitiv, DailyFX

EUR/GBP Bias To Fade Rallies Remains