GBP/USD has room to extend its fall as US stimulus set for sign-off

GBP/USD has failed to overcome dollar strength despite Britain’s vaccination campaign as the Fed remains reluctant to intervene. US inflation figures are returning to the spotlight exactly as fiscal stimulus is set for a critical vote. In the UK, GDP and the reopening stand out in the second week of February, FXStreet’s Analyst Yohay Elam informs.    

Key quotes

“After hitting the 15 million people mark on February 15, there seems to be some slacking off in recent weeks. The pace of immunization is critical as the UK enters its first stage of reopening on March 8. A successful return to normal would boost sterling while bumps in the road would weigh on it.”

“Bank of England Governor Andrew Bailey is set to speak early in the week. Similar to Powell, he is set to shape expectations and perhaps comment on rising bond yields. The second significant event is the release of Gross Domestic Product figures for January. Despite lockdowns, Britain’s economy edged higher at the end of 2020 but there are doubts about further expansion in January, during which the nation was in lockdown.”

“Investors are pricing anything from $1 to $1.5 trillion, so a package in the hundreds of billions would be disappointing, while anything closer to the original sum would boost markets. Comments from Joe Manchin and Kirsten Sinema, the most conservative Democrats in the Senate, are critical to any approval. Republicans are set to unite against it. Given the 50:50 Senate split, the president’s party has no margin for error.”  

“Inflation remained tame in January, but producer prices picked up. Economists expect the headline Consumer Price Index to advance to 1.6% in February, but see Core CPI depressed at 1.4%. Any sign of rising prices could boost the dollar.”