The British pound rose back towards its recent three-year high, boosted by a combination of heightened global risk appetite and optimism about the UK’s vaccine rollout.
Riskier currencies gained against the dollar, which edged lower as global market sentiment was lifted by an equity rally in the Asian session.
The pound strengthened even more than other “risk” currencies such as the Australian dollar and Norwegian crown.
After a row between Britain and the European Union over vaccine supplies, EU officials said on Saturday that it had been a mistake to invoke Northern Ireland Brexit emergency powers.
The UK said it expected its supply of COVID-19 shots would not be interrupted. Official data on Sunday showed that nearly 9 million people in the UK have been given their first dose of a vaccine.
This Thursday the Bank of England will announce its latest monetary policy decision and release its quarterly MPC report. The BoE is expected to leave all policy measures untouched, but the quarterly report will give an indication into the health of the UK economy.
The central bank may also update the market on how they perceive negative interest rates and if there is any reason to use them in the months ahead. The MPC will also give its latest views on inflation and how covid-19 is affecting the UK economy.
In the Euro zone the markets were supposed to pick up a hint at the January 21 press conference that a Eurozone interest rate cut is a possibility.
As they did not, it would be no surprise if other members of the ECB’s Governing Council line up in the next few weeks to push out the message in a less subtle way. With the ECB’s deposit rate already at minus 0.5% there is clearly little room for further reductions and current market pricing suggests only a 70% chance of a move to minus 0.6% by the end of this year.
Nonetheless, if the markets do take the hint in the days ahead, a drop in EUR/USD would not come as a surprise.