Home » Currency 101 » What’s coming up for the pound in 2021?

As governments start the ‘race to recovery’ and face the challenge of vaccinating entire populations, the next three months will be crucial for GBP, EUR and USD. The uncertainties of the year ahead bring a whole new set of challenges for currencies and could spell a bumpy ride for the pound.

It’s safe to say that no one, not even the banks, can predict the outcome of the events of 2021. Therefore, it’s very difficult to forecast how the pound might move. Nevertheless, we’ve collated predictions from major banks and highlighted key factors which may influence the pound, euro and dollar in our latest quarterly forecast.

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Pound verses Euro

According to some analysts, GBP/EUR could fall to around €1.06 in the next three months. Not everyone is quite so pessimistic. Predictions stretch as high as €1.16 but settle at an average of €1.11.

After being driven primarily by Brexit negotiations before Christmas, the pound is now being impacted by a variety of different factors. COVID-19 and the pace of the vaccination rollout are key drivers as these factors directly affect the rate of economic recovery. Economic data, especially releases which give a strong indication of how the UK economy is performing, is also having a significant impact on the pound at the moment. Decisions from the Bank of England are also significant, especially with the next monetary policy meeting coming up in February.

The euro could be driven by economic news from the Eurozone and the actions of the European Central Bank over the coming months. Many European countries and the European Commission have been criticised for a slow start to approving vaccines and starting vaccination programmes. However, it’s hoped that this will pick up speed in the coming weeks and months.

Pound verses dollar

After a brief spike at the beginning of this year, the dollar has been weaker recently in anticipation of a Biden Presidency. The banks predictions show a huge disparity for this pairing over the next 12 months, with forecasts ranging from 1.19 to 1.50!

SOURCE: REFINITIV, A DIVISION OF THOMSON REUTERS. FORECAST ACCURATE AS OF 7 JANUARY 2021.

A Biden Presidency is expected to bring more economic stimulus for the US economy. This week, Biden’s nominee for Treasury Secretary, Janet Yellen, spoke of substantial fiscal spending, urging Congress to ‘act big’ with their COVID-19 relief. More of this kind of rhetoric is expected, which will prompt investors to move towards riskier assets and away from the safe-haven dollar, causing the dollar to weaken.

The US is expected to return to a more ‘predictable’ governance under Biden, which some say spells weakness for the dollar. However, Biden’s task isn’t an easy one and there are plenty of factors, such as COVID-19 and trade tensions, that could cause the greenback to strengthen over the coming year.

Euro verses dollar

Predictions also show a large disparity for EUR/USD, ranging between 1.15 and 1.25 over the next three months.

This pair could be largely dependent on demand for the dollar as a safe haven currency. If the coronavirus situation improves over the coming months, we could see the euro strengthen and the dollar weaken. Similarly, if there are signs of economic recovery across Europe and the US, the euro could benefit from this.

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