The end of February 2021 seems to bring a bit more volatility to many asset classes, including currencies, commodities or cryptocurrencies. We take a look at the most interesting of these in terms of recent price movements.
At the forefront is the British pound, whose quotes against the US dollar at one point rose as high as 1.42, the highest level since April 2018. All this on hopes that the British economy will fully reopen this summer. Prime Minister Boris Johnson has unveiled plans to ease restrictions, saying his roadmap will guide the government cautiously but irreversibly towards lifting the restrictions. Sterling has been supported recently by hopes of a faster economic recovery aided by a rapid pace of graft in the UK and a post-Brexit trade deal with the EU. From the perspective of the pound and the UK economy, it is hard to expect anything worse than a covid and brexit to happen in one year, which seems to lead to a much better outlook. The UK started the fight against the coronavirus in a less than ideal way, but it may end it victorious as one of the first countries in the world to do so. With the British pound hugely oversold by institutions, this could lead to more demand for the currency.
Gold, on the other hand, seems to be a somewhat forgettable market today. The price of the yellow metal fell to around $1,760 per ounce at one point, leveling off at its lowest level since November 2020. The price drop seems to be mainly influenced by the repricing in the US Treasury bond market and the increase in their yields, which may make gold less attractive. The rise in inflation expectations in the US has slowed, which also may reduce the pressure to buy gold as a hedge against inflation. As a result, gold needs new stimulus from other markets as it seems not to generate significant demand on its own.
Yesterday, the gold price managed to defend support perhaps thanks to the statements of Jerome Powell, chairman of the Federal Reserve. Powell assessed that the economy is far from the central bank's employment and inflation targets. It will likely be some time before the Fed chief considers changing his current monetary policy stance. Fed officials also agreed that they do not view inflation as a risk and view much of the recent rise in stock prices as a sign of market confidence in the global economic recovery. President Joe Biden's $1.9 trillion COVID-19 package is expected to be approved in the coming days.
Meanwhile, in the cryptocurrency market, the price of bitcoin returned above the $50,000 level, and the ETH/USD exchange rate was at nearly $1,700, turning around after a correction earlier in the week. Available data shows that there are no net capital outflows from the largest cryptocurrency fund run by Grayscale, while Purpose Investments' first ETF launched last week even saw further inflows. Cryptocurrency inflows to exchanges have also slowed down, which may show that the recent event was a one-off and did not spook the big players.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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