Sterling Has Fared Okay During Lockdowns – Sterling Update

It was the first anniversary of Britain’s initial Covid lockdown, and despite the pandemics impact on economies worldwide, sterling has fared okay during lockdowns, with an average gain of 2.6%. This week the pound faced a poor start and a strong finish, leaving it an average of 0.1% firmer against the major currencies; in other words just about unchanged.

Overall though, the UK economic data was a mixed blessing for the pound. Investors’ were not enthused by the UK inflation numbers, most of which were lower than forecast. Factory gate prices were 0.9% higher on the year while consumer prices rose just 0.4%. Although the retail price index was up by 1.4%, the measure does not figure in the rate-setting decision process. UK employment figures showed small increases in the number of employees, although, since February 2020 their number has fallen by 693k. The rate of unemployment fell to 5%. Wage growth remained strong at 4.8%, mainly because of the loss of more lowly-paid jobs and the payment of deferred bonuses.

What has been interesting is watching sterling’s performance over the past month, as the US dollar had added an average of 3% against other majors. In the short term sterling has underperformed against the euro despite the UK’s fast pace at vaccinating the population. Perhaps investors are concerned about the threat of an EU-UK vaccine war, or maybe they simply have one eye on how the economy will perform post-Brexit. Only time will tell.

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