GBP/USD Smashes Resistance After Shot In The Arm, Hurdles Remain

  • GBP/USD has been rising on vaccine and Brexit optimism.
  • Struggles around the next budget and concerns about lockdowns may weigh on the pound. 
  • Monday’s four-hour chart is painting a bullish picture.

Back to normal some time after Easter – that is the promise from Matt Hancock, the UK’s health minister. He has been speaking after AstraZeneca and the University of Oxford reported some results from their COVID-19 vaccine trial.

The average efficacy is around 70% – lower than the competition from Pfizer/BioNTech and Moderna. However, AstraZeneca (AZN) says that a smaller dosing regimen of 1.5 shots instead of two is 90% efficient. Moreover, the material can be stored in regular fridge temperature and the firm says it can produce three billion doses next year.

Markets received another boost on the news, pushing the safe-haven dollar down. Moreover, as the British government has an agreement to purchase 100 million doses – potentially sufficient for vaccinating 66 million people – the pound also responded positively.

The news follows the UK government’s strive to approve the usage of vaccines from Pfizer/BioNTech as early as early December, perhaps surpassing the US. (PFE, BNTX)

Sterling is also benefiting from optimism around Brexit. The British media has been reporting that an agreement is “95% done” and basically imminent. However, investors have known that most of the details of future EU-UK relations have been ready for some time, while that 5% – fisheries, state aid, and governance – remain sticking points.

An accord is not fully priced in and could boost the pound. However, if time passes by without white smoke from Brussels, sterling could suffer.

Another hurdle is the upcoming budget. While Chancellor of the Exchequer Rishi Sunak committed to refrain from austerity, he is reportedly considering a pay freeze for most public workers. Such a move is already angering unions and could weigh on consumption.

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