Search ForexCrunch
  • GBP/USD has been weathering dollar strength on upbeat comments from the BOE’s Bailey, UK vaccine rollout.
  • Biden’s inauguration, immunization figures and central bank speculation are critical.  
  • Mid-January’s daily chart is painting a mixed picture for the pair.

“Controversial” is what Bank England Governor Andrew Bailey called negative interest rates – providing sterling ammunition to fight dollar strength. Both the US and the UK are ahead in vaccination, which remains critical and competes for influence with President-elect Joe Biden’s inauguration.

This week in GBP/USD:

Yet another Bailey bailout: The BOE has come out of the shadows and boosted the pound by all but shelving the option to set sub-zero borrowing costs. The specter of negative rates had been weighing on sterling since the summer – not anymore.

Another positive factor for sterling was a drop in UK coronavirus cases. The harsh lockdown effect – to fight the new, highly transmissible variant –   is bearing some fruit. Unfortunately, deaths remain high on both sides of the Atlantic.

Covid infections in the US, the EU  and the UK

Source:  FT  

The upshot is that both countries have ramped up their vaccination campaigns. The UK has begun inoculating in pharmacies and is ahead of the whole of Europe combined. Prospects of an early exit from the pandemic have also supported sterling.

For broader markets, the ebb and flow in US bond yields had the greatest impact on the dollar. Investors sold bonds in response to Biden’s proposed $1.9  trillion stimulus package and as some Federal Reserve officials played around with tapering the bank’s bond-buying scheme in response to improving conditions.

However, several auctions resulted in strong demand for US debt, pushing returns and the dollar lower. Moreover, Jerome Powell, Chairman of the Federal Reserve, put an end to the taper talk by reaffirming the Fed’s commitment to loose monetary policy.

A leap in weekly jobless claims to 965,000 – the highest since August – also contributed to pushing yields lower. The picture became even worse with the publication of Retail Sales statistics for December, which plunged by 1.4%. However, the dollar advanced, benefiting from safe-haven flows and shrugging off yields.

Markets shrugged off outgoing President Donald Trump’s second historic impeachment for incitement of insurrection, focusing on the future.

UK events: Vaccine stats in focus

UK Prime Minister Boris Johnson tied the exit from the lockdown to high immunization levels. The government already announced it is stretching the gap between the first and second doses, aiming to inoculate as many people as possible – and investors will want to see the figures rising rapidly. The new goal is 500,000 jabs per week.

Headlines about new vaccination centers would also be supportive, while delays in production or distribution of the jabs would weigh on the pound. The world is also watching Israel, the world leader in immunization, to see if administering the Pfizer/BioNTech vaccine is widespread. Initial studies look promising, but more data is needed.

Source: OurWorldInData

Coronavirus: Statistics, herd immunity, vaccine calendar and impact on financial markets and currencies

Post-Brexit talks about the future of the financial services sector will likely remain on the backfire, but markets would welcome additional government aid.

UK Consumer Price Index statistics for December are projected to show another increase from 1.1% to 1.4%. Unless inflation nears 2%, sterling will likely ignore the release.

More importantly, Friday’s Retail Sales data carries uncertainty. Consumers showed strength in 2020, thanks to government aid. Did the trend continue in the last month of the year, when restrictions dampened the Christmas holidays? The pound will likely rock on any outcome.

Markit’s preliminary Purchasing Managers’ Indexes for January are set to show an ongoing divide between the shielded manufacturing sector and the services one struggled with the lockdown.

Here is the list of UK events from the  FXStreet  calendar:

US events: Biden’s first steps in focus

Markets were somewhat disappointed by Biden’s comment that “everybody must pay their fair share” – implying tax hikes. However, any idea presented in the speech is still subject to scrutiny by both Democrats and Republicans. Deliberations are set to begin immediately, and the opinion of moderates from both parties is critical. Biden’s Dems only have slim majorities in Congress.

The new occupant of the White House will probably sign Executive Orders in his first days in office. Some, like returning to the Paris climate accord, was well-telegraphed. Any economic surprises may also move markets. Perhaps most importantly, Biden may opt to stretch the gap between the first vaccine dose and the second – following the UK. That could accelerate America’s immunization pace, albeit not without risk.

Some supporters of outgoing President Donald Trump plan to express their dissatisfaction at his loss, and violence is feared. While Trump leaves quietly and violence is contained, investors will likely continue shrugging off the political drama in the Capitol insurrection aftermath.

The economic calendar is relatively light, but special attention will probably be given to weekly unemployment claims. If they  top one million, investors may worry.

Here the upcoming top US events this week:

GBP/USD technical analysis

Pound/dollar continues trending higher, setting higher highs and higher lows. Momentum on the daily chart remains to the upside, and the currency pair is also trading above the 50, 100 and 200 Simple Moving Averages.

Critical resistance awaits at 1.3705, which is 2021 high, and was tackled twice afterward. The next levels to watch are 1.3730, 1.3810, and the round 1.40 peak – all were in play back in 2018. Hitting the post Brexit referendum high of 1.46 will have to wait.

GBP/USD has support at 1.3620, which was a swing high in December. It is followed by 1.3530, which was a peak earlier last month. The swing low of 1.3440 is the next level to watch before 1.3310.

GBP/USD sentiment

Pound/dollar may extend its gains, riding on the vaccination campaign and dollar weakness – assuming Biden makes progress in getting his plan approved.

The  FXStreet Forecast Poll  is showing that experts are divided on the next moves for sterling. The recent chippiness in price action is also reflected in a plethora of opinions. However, targets are little changed on average.

Related reads