Weak Euro & Strong Pound Tend to Be Clear| Influencer‘s Insight •Jasper Lo

The euro, the British pound, and the Swiss franc are major European currencies traded in the forex market. So far this year, the euro has staged poor performance, compared with what the pound did. As of writing time, EUR/USD fell 2.16%, CHF/USD dwindled 1.64%, but GBP/USD gained 0.7%. Obviously, the pound performed better than other European currencies.

Although the UK has left Europe with a narrowly achieved Brexit deal, the country‘s financial sector was negatively impacted, which in turn encumbered the national economy. The pound under the conditions still gains momentum because traders are expecting migration-related capital inflows to the UK. The capital flows could underpin the pound to extend gains. For example, the capital flows from mainland China put a premium on Hong Kong's stocks, despite the region’s poor economic performance.

In mid-January, Bank of America Corp. estimated in its report that migration-related outflows to the UK alone could reach $36 billion this year. Emigration could be as high as 320,000 residents in the next five years, the British Home Office estimated. The pounds exchange rate continues moving higher in the wake of these reports. On Thursday (February 4), the Bank of England asked British banks about their preparedness for negative interest rates and said they would need at least six months to prepare for the shift. The pound embraced a sharp rally upon hearing the news.

At the same time, traders believe that the UK is leading Europe's coronavirus vaccination race. Since the rate of infection among the elderly is falling, the UK has a chance to recover faster than other European countries. Technically speaking, the resistance for GBP/USD stands at 1.3761, where a breach above will open the door to 1.3964. Currently, the euro stays weak while the pound remains constructive. Cross trade in EUR/GBP may challenge the support at 0.8670, where a break below will pave the way to 0.8300.