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  • GBP/USD has traded within relatively thin 1.3620ish-1.3680 ranges so far on Thursday.
  • Dollar traders eye key incoming events including a speech from Fed Chair Powell and incoming US President Biden on stimulus.

GBP/USD has traded within relatively thin 1.3620ish-1.3680 ranges so far on Thursday, with the pair at the moment trading with minor gains of around 0.2% or just under 30 pips at just above the 1.3650 level. Markets are firmly focused on the USD side of the equation, with dollar traders eyeing key incoming events including a speech from the Chairman of the US Federal Reserve Jerome Powell at 17:30GMT and incoming US President Joe Biden’s stimulus plan announcement at expected at 00:15GMT on Friday.

FX unfazed by soft US jobs numbers

USD and broader risk appetite was unaffected by worse than expected US weekly jobless claims numbers; in the week ending on the 9 January, 965K American signed up for unemployment insurance, a significant spike from the week prior’s 784K reading and well above expectations for 795K. The numbers show that after a rough December for the US labour market (as indicated in last week’s official NFP report), weakness has spilled over to January, which is unsurprising given the rate at which Covid-19 is spreading in the country is yet to relent and many industries (namely hospitality and leisure) are still locked down.

GBP set to continue to outperform?

Choppy but broadly higher US yields have been supportive for the US dollar versus the majority of its major counterparts over the last few days. USD is the second best performing G10 currency on the week, lagging only behind GBP.

Earlier on in the week, sterling was supported as markets revised lower their bets that the BoE would take interest rates into negative territory following remarks from the BoE Governor Andrew Bailey who did not sound overly keen on the policy option. However, traders have sited the fact that the UK is building a lead in terms of the percentage of its population who have been administered the Covid-19 vaccine over peer countries that might hand the UK a comparative growth advantage later in the year.

The fact that Covid-19 deaths have in recent days hit new record highs has not dented sentiment towards sterling, given that the number of new infections being reported has started to drop, a promising sign that the R rate may have dropped back below 1.0 again, signifying that the lockdown the country has been in since before Christmas is working.

Many analysts anticipate that the UK’s comparative lead versus the USA and EU in the vaccination race may continue to support GBP going forward, as might further indications that the BoE is not going to be quite as dovish as previously thought. On that note, BoE research in the feasibility of negative interest rate policy in the UK is set to be released in February. A negative report on the policy’s use (i.e. the BoE deems NIRP infeasible or ineffective) would put a nail in the coffin of UK NIRP and could further support GBP.