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The UK’s economy is under the spotlight considering how far the pound has managed to rally in recent days without pause for a breath.

The bank of England recently dialled back on negative rates and the vaccine roll-out has gone better than expected for which PM Boris Johnson has decided to tentatively ease lockdown restrictions. 

Additionally, there haven’t been any reported disruptions to UK trade since Brexit and the pent=up demand with prospects of a strong economic recovery have boosted sterling. 

In recent news, the UK chancellor Rishi Sunak is planning ‘giveaway’ budget next week to inject the UK with a post-lockdown boom, according to an article in the Daily Mail.

 ”The mail can reveal Treasury officials are examining even more dramatic plans for a major stimulus to the economy later this year.”

Market implications

If investors take a leaf out of the US book, then this is promising for the UK shares market but potentially limiting for the prospects for higher highs in the pound. 

With that being said, if investors take the view that this will boost the economy and if that outweighs the risks of lower real yields, then the pound could benefit from demand for UK assets. 

  • GBP/USD consolidates below yearly highs, focus is on 1.3980

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