Currency Note

Pound trading at 2021 high

By Alex Bennett December 31st, 2021

On the final day of the year, sterling is trading at its highest level in 2021 against the euro and is also strong against the dollar.

The UK’s vaccination programme, hailed “heroic” by the Prime Minister, has led investors to favour the pound as countries around the world race to beat the spread of the Omicron variant. All eligible adults in England have now been offered a Covid booster jab and more than 70% have received it.

In the US, unemployment claims fell to the lowest level in 52 years last week. This indicates that the US labour market is well on the way to recovery following pandemic-related unemployment.

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GBP: Pound at yearly high against euro

The pound is trading at a 2021 high against the euro and around monthly highs against the dollar.

Soaring Covid cases and increased restrictions in Europe have given sterling the edge against the single currency. In addition, markets are widely anticipating another interest rate hike from the Bank of England in early February and potentially also in May.

In his year-end message, Prime Minister Boris Johnson said the UK is in an “incomparably better” position this new year compared to the start of 2021. Nonetheless, he has urged people to be cautious with New Year’s Eve celebrations as UK Covid cases reached another record high yesterday.

GBP/USD chart over past year

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EUR: Dovish ECB stance could weigh on euro in 2022

The euro is still weaker this morning due to a lack of eurozone data and markets continuing to favour the pound and dollar.

As we head into 2022, the euro could continue to suffer from the divergence in monetary policy between the European Central Bank and that of the other major Banks. In comparison to the Bank of England and the US Federal Reserve, the ECB has had a relatively dovish stance on monetary policy, despite rising inflation.

Inconsistent restrictions within the eurozone to tackle the wave of the Omicron variant are also taking a toll on the euro.

USD: Dollar up after strong jobs data

The dollar is still strong against the euro following positive jobs data.

Weekly jobless claims in the US fell to a 52-year low of 198,000 while continuing claims also fell to the lowest level since before the pandemic. This data indicates that the US labour market is tightening and will no doubt be reassuring for the Fed as it eases monetary policy.

It’s a quiet day for data today. The next big release will be on the 3 January when we will see Market PMI for December.

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