Pound sterling set for biggest weekly loss this year

09 Apr 2021

Sterling declined on Friday to hit a two-month low against the dollar in early morning trading, on track for its largest weekly fall so far in 2021.

In the first quarter of this year, the pound enjoyed its best three months since 2015, boosted by Britain’s vaccine rollout, coupled with negative rate forecasts waning.

Yet the trend reversed this week as the pound declined against the euro on Tuesday, Wednesday and Thursday, which was exacerbated by a “squeeze of euro-pound short positions” according to Yahoo News.

At the time of writing, sterling stood at 86.81 pence against the euro, down around 0.1% on the day. 

This is 2.1% down on the week as a whole, meaning sterling is on track for its largest weekly drop since September last year.

Against the dollar, the pound fell 0.3% at $1.3697, set for the largest weekly decline since December 2020.

According to Marshall Gittler, head of investment research at BDSwiss: "The selling of sterling may have been connected to buying of euros.

"It looks like perhaps people are getting more optimistic about the rollout of a vaccine in the EU and less optimistic about the comparable move in the UK."

Yet other analysts are positive about sterling’s prospects in the coming months.

"GBP may further weaken, given lingering concerns about vaccinations, but we still see the ongoing GBP-USD retreat to 1.37 as a buying-on-dips opportunity over the medium term," said UniCredit strategists.

In addition, ING said that the euro-sterling short squeeze "may have run its course ahead of 0.87" and they forecast both to reach 0.85 later in the second quarter.