The Rally in Pound Continues As Euro Declines on ECB’s Comments

Today, the pound rises sharply, outperforming the Australian and New Zealand dollar. Amid good data on investor trust, the Euro is under intense selling pressure against the British pound and the Australian dollar. As per comments made by ECB chief economist Philip Lane, the central bank is still open to increasing asset purchases in the coming quarter, depending on market conditions.

Following last week’s regional and local elections across the United Kingdom, UK Prime Minister Boris Johnson has strengthened his hold in England, but demands for a new Scottish independence referendum have grown stronger. The pound is reveling amid the Scottish National Party failing to gain a majority in the Scottish Parliament, and Johnson’s Conservatives escaping the latest sleaze scandals that have rocked the party.

However, the battle between Holyrood and Westminster has only just begun, and while sterling may gain more support on Wednesday if Q1 GDP data are not too dire, the political risks are still there. Boris gains approval in England, but problems are brewing in Scotland.

The GBP/USD pair showed strong gains in the second half of the previous week and maintained its bullish momentum on Monday. After touching its highest level since late February at 1.4158 early in the US session on Monday, the pair appears to have entered a phase of consolidation, and it most recently rallied 1.2% on the day to 1.3143.
Euro Declines on ECB’s Comments
In an interview with Le Monde, ECB chief economist Philip Lane said that “from now on, the economy will grow rapidly, but from a moderate level.” The Eurozone will only return to its 2019 GDP level “around the same time next year”. The unemployment rate will return to the 2019 level only “in 2023”. Hence, “it’s a long journey” that still requires “constant” financial and monetary efforts.

Lane also said that despite rising yields on some eurozone bonds, they “remain relatively low and stable.” He reaffirmed the ECB’s commitment to “maintain favorable financing conditions.” The “significantly” higher level of asset purchases announced in March will continue in the coming weeks. The pace of procurement will be reviewed at the June meeting. He added: “We can increase or decrease our purchases as needed to maintain a favorable financing environment.”

The EUR/USD exchange rate climbed to 1.2176, its highest level since February, and was last seen floating around 1.2160. While the pair remains bullish, a corrective decline is anticipated. The immediate support level is at 1.2149, with a break below it revealing the 1.2100/10 area.