- GBP/USD is consolidating just under the 1.3750 mark as the Friday Asia Pacific session gets underway.
- Easing UK/EU vaccine tensions and ongoing vaccine rollout/reopening/recovery optimism all helped GBP on Thursday.
GBP/USD is consolidating just under the 1.3750 mark as the Friday Asia Pacific session gets underway. The pair rallied from weekly lows in the 1.3670s on Thursday and was the best-performing currency in the G10, though GBP/USD was unable to recover as far as the 1.3750 mark. If USD continues to gain ground, as was the case on Thursday against most of the rest of its G10 peers, a reversal back towards weekly lows is likely.
Driving the day
There was no specific fundamental development behind GBP outperformance on Thursday, but a few overarching factors likely support the currency, particularly versus the likes of the euro and yen. Firstly, it appears as though UK/EU vaccine tensions are easing. As a reminder, on Wednesday, a joint UK/EU statement was released saying the two sides would work together to create a win-win situation regarding vaccines and Dutch PM Rutte recently remarked that he is cautiously optimistic that vaccine issues with the UK can be resolved.
Meanwhile, the overarching narrative that the stage is set for the UK economy to outperform most of its non-US developed market rivals over the coming months remains in place. As of Thursday, the UK has nearly given at least one Covid-19 vaccine to nearly 29M adults. The impact of the country’s successful vaccine rollout is clear as day in the daily infection/hospitalisation/death counts, all of which are rapidly dropping back towards last Summer’s levels at an accelerated pace versus what lockdown achieved in the absence of vaccines in 2020 (this is to be expected, given the vaccines are moving the country towards herd immunity). The UK’s roadmap to reopening its economy fully by June remains on target and, if anything, the calls are for the UK economy to be reopened sooner. That is in stark contrast to the fortunes of the EU, whose vaccine rollout has lagged and who are now, unfortunately, being hit by the much more transmissible UK (B.1.1.7) variant of Covid-19 that hit the UK so badly in January and February.
Looking ahead, UK Retail Sales for the month of February will be released at 07:00GMT on Friday morning. With all non-essential retail stores closed in the UK until mid-April, Retail Sales is likely to remain subdued, though significant growth in the YoY rate of eCommerce sales growth should be expected. This will only start to drop off once physical stores are opened in a few weeks’ time. Markets expect that headline retail sales will show YoY growth of -3.5% in February – note that February 2020 was the month before lockdown, so the YoY rate of retail sales growth will shoot up in March to reflect weak base effects. That means the MoM indicator of retail sales growth will be the better indicator to watch.
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