Mixed performance for the British pound this week thanks to the usual drivers of Brexit worries, weak U.K. economic updates and further speculation on the Bank of England’s next move. But mainly, the diverging price action was due to global risk sentiment and counter currency flows.
United Kingdom Headlines and Economic data
Broad positive risk sentiment (continued recovery hopes and vaccine development news) was likely the main driver for Sterling’s split performance, rallying against the “safe havens” while under performing against the higher-yielding currencies.
The broad, sudden move lower against the safe havens / higher against the high-yieldings during the U.S. trading session was likely on a shift in risk sentiment towards negative, this time possibly on geopolitical tensions rising (e.g., U.S. weighs sanctions on Chinese officials, firms over Hong Kong, China approves controversial national security bill for Hong Kong).
Strong move higher in Sterling against the majors during the U.S. session (minus the euro and franc) was a bit odd. Against the higher-yielders, it could be attributed to the rise in geopolitical tensions (Riot police deployed in Hong Kong, China approves controversial national security bill for Hong Kong), but against USD and JPY, it’s somewhat not clear. Possibly on the recent positive European sentiment after the EU unveils plan to borrow 750 billion euros to aid economic recovery?