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Prices & Quotes

Sterling breaches $1.40 amid vaccine optimism, despite weak retail sales

By Michele Maatouk

Date: Friday 19 Feb 2021

LONDON (ShareCast) - (Sharecast News) - Sterling breached the $1.40 level on Friday for the first time since April 2018, despite the release of disappointing UK retail sales data, with analysts pointing to optimism over the vaccine rollout.
Neil Wilson, chief market analyst at Markets.com, said: "After some likely profit taking around this region you can now see GBPUSD start to look to edge up to around 1.44-45.

"Partly it's a sign of emerging confidence in the UK's economic recovery thanks to vaccines - and the end of the Brexit cliff-edge - but also just plain old dollar weakness."

Wilson said that looking forward, sentiment will depend on Prime Minister Boris Johnson's unlocking plans, due to be announced on Monday.

"So far, he has stressed caution and said reopening will be gradual and conducted in stages," he said. "Schools will undoubtedly be first, pubs likely last. Pound strength will be a partial headwind to the FTSE 100 thanks to the dollar earners, but as stated previously overall I think we are back into a stronger correlation between sterling and UK equities now that the Brexit risk has been removed."

Lee Hardman, currency analyst at MUFG, said a lot of good news has now been priced into sterling, leaving it more sensitive to any disappointment going forward.

"A slower paring back of restrictions could dampen some of the recent optimism over the faster rollout of vaccines in the UK," he said.

Earlier, figures from the Office for National Statistics showed that retail sales slumped in January as tighter nationwide coronavirus restrictions hammered department and clothing stores.

Sales volumes fell 8.2% compared with December, the biggest fall since April, and far more than the 2.5% forecast by economists.

The ONS said the figures reflected the impact of the third national lockdown imposed at the start of the month. Sales were down 5.5% year on year.

Separate figures form the ONS showed the UK government borrowed another 8.8bn in January, less than the 24.5bn forecast by economists.

Borrowing since the start of the financial year in April now stands at 270.6bn, reflecting the surge in spending and tax cuts introduced by Finance Minister Rishi Sunak to counter the impact of the Covid-19 pandemic.

Britain's national debt has now hit 2.1trn, and the ONS said debt as a percentage of GDP was at its highest since the 1960s, currently at 97.9%. The government is on track to borrow 400bn by the end of the current financial year in April.