Who knew at the initial peak of the COVID-19 crisis, in mid-March, that the British pound would be the star of the main world currencies, considering the uncertainties that surrounded the United Kingdom, with the theme of Brexit at the head? But what is certain is that less than a year later Her Majesty’s currency is the one that has performed best since the beginning of 2021 against the US dollar, within the G10 countries. In a very quick and superficial analysis the definitive cut of the relationship with the European Union was beneficial for the United Kingdom. In addition, the definition of this political issue that has created uncertainty in recent years, the development of the pandemic is another factor that is benefiting Libra, since the United Kingdom is the country with the most vaccinated people, with one dose, following Israel, which is creating a wave of optimism about the possibility of the economy reopening sooner than expected.
Photo by Ivan Diaz.
Optimism that was reinforced this week with Boris Johnson’s statements in Parliament, announcing a defined plan to lift the restrictions in force, with schools in the foreground reopening in early April, while non-essential retail, such as pubs and tourism will have free transit in the second phase, which will be in April. Five weeks later some restrictions on social contact will be lifted and finally after another five weeks, or at the end of June, all current contact limitations will no longer be in effect. Now, for a market that likes specific dates, sometimes more than the reasonableness of them, this calendar created additional support for the UK currency, which trades at 0.85 in EUR/GBP, after reaching a year ago a medium-term minimum against the single currency at 0.95. In the USD/GBP pair, the Pound’s gain was even more expressive as it appreciated from the 1.14 registered on 19 March 2020, to the 1.42 reached this Wednesday.
Interestingly, although this rise conditioned the Footsie stock index, it did not prevent it from gaining around 25% since the lows of a year ago, it remains to be seen how long the strength of the pound can be maintained, without causing a more visible cooling in the stock market.
