Monthly Wrap: GBP – UK vaccine success spurs pound to multi-month highs

Key takeaways:

–             Pound bolstered by UK’s vaccination drive.
–             Reduced odds for negative rates also boost Sterling.       
–             GBP Monthly lows: €1.12, $1.35, AU$1.75, NZ$1.88, C$1.72
–             GBP Monthly highs: €1.15, $1.39, AU$1.80, NZ$1.93, C$1.76
 
The pound maintained a positive trajectory over the past month, largely thanks to the UK’s success with its vaccine rollout.

The UK currently leads the western world in its vaccination drive, with over 15 million people having been offered at least one jab.

This success has underpinned hopes the UK government will be able to start easing lockdown measures before most other countries, and that this will lead to a strong economic rebound this year.

Adding to Sterling’s momentum at the start of February was the Bank of England’s (BoE) first policy decision of 2021, in which it hinted that negative interest rates are highly unlikely to be deployed by the bank during the current cycle of monetary easing.

GBP investors have also welcomed some positive UK data releases, most notably the UK's latest GDP figures, which reported a surprisingly strong expansion of growth in the last quarter of 2020.

However not all of these data releases have been supportive of Sterling, with some dismal PMI figures briefly taking the wind out of the Pound’s sails in the second half of January.

Looking ahead, the pound looks well positioned to continue its advance as the UK’s vaccination programme continues to garner envy from most other countries.

However, this uptrend will also depend a great deal on the UK government’s plans on how to exit the current national lockdown.

Boris Johnson is set to publish his roadmap for easing restrictions on 22 February, a plan in which the Prime Minister has described as ‘cautious but irreversible’.

While Johnson’s claim that this will be the last lockdown will be welcomed by GBP investors, the timetable for easing restrictions will act as the main catalyst for Sterling in the coming month, with the pound likely to respond well if most of the economy is allowed to reopen over the next couple of months.

Also, in focus for GBP investors will be the unveiling of Chancellor Rishi Sunak’s budget at the start of March.

While the Chancellor is likely to announce additional support to help protect jobs, he is also under pressure to raise taxes to help repair the UK’s finances, any hint of which could weigh on the Pound.