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Sterling rises against struggling Dollar

04 Jan 2021

On the first Monday of the new year, the GBP/EUR exchange rate stood at 1.1166, with the Pound dropping against the Euro whilst maintaining multi-month highs against a weaker U.S. Dollar. Against the USD, the British Pound was being traded at 1.3686.

Before starting the new year, the British Sterling was supported by the post-Brexit trade deal between the UK and the EU. However, the agreement did not reach the expected rise that foreign exchange analysts had predicted initially. 

Analysts pointed out, “After weeks, months, and years of back-and-forth, it seems the confirmation of the deal was mostly as expected by markets and as such is not a game changer for sterling. Other factors, most importantly Covid-19, will now once again begin to drive the outlook for the Pound.” 

The Sterling rallied on the renewed Dollar weakness during the new year, reaching its highest level in two years and seven months. Reuters’ Andrew Spencer noted, "The broad USD downtrend looks set to initially extend as resilient risk sentiment reduces the dollar's safe-haven appeal, providing underlying support for GBP/USD.”

However, against Asian currencies, the Dollar continues to struggle as the Asian economies are performing better than those in the West. “The top performers have been the Indonesian rupiah and Chinese renminbi.” 

Moreover, the Reserve Bank of New Zealand’s changes helped the New Zealand Dollar make a comeback late last year. Traders are expecting the Kiwi Dollar to extend the recovery throughout this year as well. Analysts explained, "Both the RBA and RBNZ have expressed a desire for their currency values to assist prospects for a recovery in employment.”