GBP/USD: Three Dark Clouds Hit Sterling, Bulls Look To Biden, UK Vaccines

Reduced restrictions after Valentine’s Day – that hope has been fading away amid reports that the government may extend the lockdown until the summer. Britain’s hospitals have been struggling under an ever-growing flow of patients, and easing restrictions may come later and be extended.

These concerns have been weighing on sterling, alongside two other developments. UK Retail Sales rose by only 0.3% in December, far worse than expected. The consumer had carried the economy forward, but such private expenditure has its limits.

Last and not least, GBP/USD has been on the back foot amid a souring market mood. President Joe Biden has been running into opposition to his $1.9 trillion stimulus bill. Republicans – including Mitt Romney which is considered moderate – seem reluctant to back additional spending. While Democrats have room to move forward on their own, support from the opposition would ensure a large package and a quick delivery.

How will Biden move forward on the economy? After presenting his pandemic plan on Thursday, the new Commander-in-Chief is slated to deliver a speech on the economy later on Friday. Hints about he moves forward are critical to markets.

The president may either go for quick and small wins – pushing non-controversial issues in early February – or aiming for the larger package. The latter would take time. Markets would like to see more funds and the sooner, the better. The safe-haven dollar would drop when markets rise and fall if they return to gains.

Returning to the UK, Markit’s preliminary Purchasing Managers’ Indexes for January are set to show a thriving manufacturing sector while the larger services sector struggles – a result of the lockdown. However, investors will want to hear about progress in the vaccination campaign.

Britain has already administered jabs to around 7.5% of the population but has yet to reach the target rate of 500,000 inoculations per day. Any acceleration would be welcome.

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