GBP Q2 2021 Fundamental Forecast

10 and 20 us dollar bill

FUNDAMENTAL ANALYSIS: VACCINATION PROGRAM PROVIDES REAL HOPE FOR THE FUTURE

The first quarter of 2021 turned out along the lines of our Q1 report. The British Pound rallied towards GBP/USD 1.4200, slightly higher than our expectations, before dropping back to 1.3700. In mirror, EURG/GBP hit a low of 0.8535, just below our 0.8600-0.8800 projected band. Looking ahead to Q2, Sterling should remain better-bid and underpinned at least at current levels, while further upside will likely be more of a struggle, and a longer process, than last quarter’s rally. There are potential roadblocks ahead in Q2 but the British Pound is well positioned to move further ahead even if others want to rein the UK back.

UK VACCINATION PROGRAM POWERING AHEAD

The UK has vaccinated nearly 30 million people (as we write) with a first dose, while over 2.5 million people have had two doses of a Covid-19 vaccination. This impressive achievement should translate to a quicker-than-expected re-opening of the UK economy, potentially powering robust economic growth and boosting job prospects. The latest official employment figures will have pleased the government with the unemployment rate falling down to 5%, while the employment rate in the three months to January 2021 was estimated at 75%, marginally lower than the prior quarter. The UK economy is expected to grow by 4.5% this year, according to the latest IMF projections, and this may be upgraded due to the speed and success of the vaccination roll-out along with the substantial fiscal and monetary policies already in place.

While the outlook for the UK economy and Sterling look brighter at the moment, the last EU/UK spat over vaccination doses may slow the UK vaccination plan and weigh on growth. The EU has said that it has the power to block any Covid-19 vaccines leaving the European Union, if manufacturers commitments to the single-block haven’t been met, as the block seeks to increase vaccinations to stem a growing third wave of the virus.

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