Morning Brief – 4 years on

Charles Porter
Tue 12 Mar 2024

4 years on

Yesterday marked the 4th anniversary of the declaration of a pandemic by the World Heath Organisation. Hearing that, many of you may question where the time has gone since. But the pandemic has left a lasting legacy on markets and the wider economy too. Many of the ranges within major currencies pairs defined and tested within the pandemic still endure. Today, let’s take a look at GBP specifically and the path ahead. Over the course of the pandemic, an initial nose-dive in GBP eventually gave way to fresh post-Brexit highs amongst GBPUSD and GBPEUR. The Fed had turned the taps on with fresh swap lines creating a weak Dollar environment within which Sterling could benefit. At the time the UK’s persuasion towards ending lockdowns and economically constraining social measures put its growth forecasts ahead of many of its peers. 

Fast forward to a post-pandemic era of recovery and the glimmer of hope for UK growth forecasts fades. Inflation data in the UK is severe, leaving the UK with one of the worst real growth forecasts amongst its developed market peers. Shrinking demand for GBP pushes Sterling crosses towards recent lows. Make no mistake that this inflation era is still a direct legacy of the pandemic. This is the phase that is immediately within our rear-view mirror. So what’s next for today and the path ahead? GBP has been one of the best performing major currencies of the year. The forecasts for year-end couldn’t be less harmonised. Recent calls from Bank of America ask for a GBPUSD pair finishing the year at 1.37. Amongst traders now, the debate is more about whether Sterling can hang onto its meagre gains accumulated so far this year.

The key to deciding which set of forecasts is right will be data. Growth is one of the only reliable predictors of exchange rates over the medium run. The feeling is that GBP’s torment from domestic data is ending, giving way to brighter forecasts. However, there is unlikely to be significant progress within GBP pricing until that is evidenced in hard data. The next step on that path will be labour market data published today. The key will not only be in the UK data but in how the UK economy measures up against its peers. The relative performance of the UK economy when measured other economy’s statistics will be vital. Most notably on the data calendar this week is US CPI inflation data due for publication later today. 

Discussion and Analysis by Charles Porter

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