GBP/USD: Three Reasons For Sterling’s 150-Pip Recovery, And Why It May Reverse

Is Britain turning a corner against coronavirus? The initial signs are anecdotal and tentative, but a dose of hope is helping sterling outperform not only the retreating dollar but also the euro. Can this trend continue? While UK optimism may prevail, the dollar may stage a comeback.

Here are the factors boosting the pound:

1) Vaccine ramp-up

Prime Minister Boris Johnson’s pledge to boost the vaccination campaign is bearing some fruit. Over two million people have received at least one coronavirus immunization dose – more than all of continental Europe combined.

Around 96% of Brits are within ten miles of a vaccination center, a figure reflecting the national effort. Britain is using three jabs, from Pfizer/BioNTech, Moderna, and the AstraZeneca/University of Oxford. A relatively rapid exit from the crisis is boosting the pound.

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

Source: OurWorldInData

2) London outbreak peaking?

The winter wave of coronavirus has been hurting the capital hard – especially due to the new variant. According to borough-level data, the number of cases in London may have peaked. These are only tentative signs, but it seems that the strict lockdown and pleas from doctors to respect the rules are having some impact.

Additional data – such as that coming in the afternoon for the whole country – is needed to add to optimism.

3) Bailey cooling on negative rates

Andrew Bailey, Governor of the Bank of England, has said that negative interest rates are “controversial” and have “a lot of issues.” At the same time, he has added that it is too soon to reach any conclusion about stimulus – before the lockdown measures and Brexit have an effect.

The BOE is awaiting evidence in the next few weeks and may consider providing more support. However, it seems that the bank would favor expanding its bond-buying scheme – which has boosted sterling in the past year – rather than sub-zero borrowing costs, which weigh on the pound.

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