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  • GBP/USD perched insight of the bears and snippers.
  • Race for COVID-19 vaccine lifting spirits and raising all boats.
  • US dollar has signalled that the market has an appetite for risk-on.

GBP/USD is trading at 1.2194 having travelled between a low of 1.2075 and a high of 1.2227. The pound has defied all logical arguments for moving lower considering the domestic fundamentals, although it is early days in a long week of treacherous events and geopolitics for which the bulls will need to now defend.

The US dollar has signalled that the market has an appetite for risk-on as governments around the world have begun to test COVID-19’s obstinateness. It was a mixed start to the week from the get-go, but risk appetite flooded-in as markets got behind courageous attempts to open up the world economy in the face of the coronavirus pandemic.  News of progress towards a vaccine as the world’s top laboratories work night and day in a race to find a solution to the pandemic helped to lift spirits. 

Signs of a vaccine breakthrough

As the lowest death toll in town months was reported in the UK, Mr. Alok Sharma, the UK’s Business Secretary, said “the UK would be the first country to get a vaccine, should trials be successful, and announced an extra £84 million in funding to accelerate research and production at Oxford and Imperial College,” as reported by the UK Telegraph.

Additionally, 

the first coronavirus vaccine to be tested in people appears to be safe and able to stimulate an immune response against the virus, its manufacturer, Moderna, announced on Monday,

– The New York Times reported in recent trade. 

A phase 1 study by Moderna, Inc., of Cambridge which has developed the vaccine in collaboration with the National Institute of Allergy and Infectious Diseases has gone well. A phase 2 study has been granted expected to enrol an additional 600 volunteers — half older than 55 — to provide additional immunogenicity data. There are hops that in July the company will begin a Phase 3 study, aimed at showing that the vaccine can actually prevent disease. 

Back to hard-Brexit and negative rate theories 

Weekend hints of hard Brexit and negative rates are nothing new, but they certainly draw a line under prospects of a bearish outcome for sterling.

  • UK’s Frost: Tells UK PM, Barnier ‘losing the argument’ in Brexit trade row – Telegraph

  • BoE Examining Negative Rates, Haldane Tells Telegraph – BBG

“Negative interest rates in the UK have long since been considered incompatible with the business models of building societies. However, for the same reason not so long ago it would have been inconceivable to have Bank rate at 0.1%. Given the scale of the economic crisis that Britain is entering into, it may be wise for investors to keep an open mind as to monetary policy developments over the next year or so in the UK and beyond,” analysts at Rabobank have explained.

The fact that the money market continues to price in a dip into negative rates suggests they are doing just that. This factor combined with Brexit risks and criticism of the government on its handling of the Covid-19 crisis suggest the potential for further pressure for the pound. We see downside risk to our long-standing target of GBP/USD1.19.

Meanwhile, EUR/GBP is playing out and moving into the hands of the bulls with support holding up as expected. so long as the world economy continues to show signs of normalizing and COVID-19 curve cntunes to flatten, the dollar will likely come under renewed pressure and give rise to a resurgence in the euro. 

  • Chart of The Week: EUR/GBP Price Analysis, bullish to 0.9060, although pullback to support first?

For the week ahead, Tuesday’s  UK jobs data will not fully show the full extent of COVID-19’s impact. On Friday, however, we will have the year on year Retail Sales (Fri) but before then, April Consumer Price Index will be in focus (factoring a drop in the oil price). 

GBP/USD levels