Pound bulls to receive another boost as UK storms ahead with vaccines
Ken Chigbo | Feb 15, 2021 15:59
The pound has been on an impressive run to the upside of late, one of the clear outperformers across G10 FX. Looking specifically at GBP/USD, over the last going on nine months, eight of those it has managed to close in the green, gaining an impressive 1500+ pips. There isn’t one particular catalyst behind the storming push north for GBP, but rather a few factors that are proving to be very much supportive.
Firstly, GBP is an extremely sensitive currency to market sentiment, so if there is risk appetite across the broader markets, then the pound flies. On the other hand, in times of risk-off or safe-haven flows, it tends to be one of the biggest casualties. Since the second half of 2020, sentiment has been heavily tilted towards flows into riskier assets.
Global economic data was showing a decent rebound after the first round of lockdowns in early 2020. There was also much optimism around incoming vaccines, with several positive developments from the likes of Pfizer (NYSE:PFE), Moderna (NASDAQ:MRNA), and AstraZeneca (NASDAQ:AZN) etc. Elsewhere, the Biden effect, with the excitement about his huge incoming stimulus, which has helped risk appetite.
To much relief for me and sure to many others, the end of the over four-year Brexit palaver. Britain and the EU were finally able to reach an agreement on 24 December 2020, following much political drama.
In more recent times, the UK has been strongly leading the vaccination race, which commenced in early December 2020 and moving at a solid pace since. The latest update being reported over the weekend, seeing more than 15 million people in the UK have now had their first coronavirus vaccine, in what Boris Johnson described as a "significant milestone".
Keeping in mind the Brexit deal and vaccine progress, these have sparked some optimism again from the Bank of England. As a result, the idea of negative interest rates which were once being heavily considered, are now being quickly priced out by the markets.
In summary, there are a lot of strong fundamental cases to continue supporting GBP to the upside for the foreseeable future against both USD and JPY, dips will likely remain attractive for buyers.
h2 Technical observations: GBP/USD monthly chart/h2Price action via the monthly chart view had formed an inverse head and shoulders structure, which has seen a breakout and retest of the neckline. Technically speaking, going via the textbook of this pattern, an equivalent move should be seen of the distance between the head and neckline (1.3500), providing the target area from the break above. Near-term there is much room for GBP/USD to move above 1.4000 and challenge the highs of 2018 around 1.4380. Read more technical details here .
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