The Pound has moved higher following the Bank of England's apparent reluctance to set negative interest rates and a positive start to the UK vaccine rollout.
The BoE’s Governor, Andrew Bailey, commented yesterday that it was unlikely the interest rate would be cut to 0% or below in coming weeks, as he anticipated an economic recovery was now on the cards. Lowering interest rates typically make a currency less attractive as it reduces investment yields, therefore these comments have helped to support Sterling.
The Pound was also boosted as the UK’s vaccine campaign accelerates well ahead of Europe and the US. Nearly 2.1 million vaccines have been administered so far, currently more than the continental European countries combined. A target has been set to vaccinate 15 million of the most vulnerable by mid-February to ease pressure on health services.
These figures put the UK in very good stead and the development could prove beneficial for Sterling. It will ultimately determine when the UK economy is able to recover, influencing the BoE’s decisions on interest rates and quantitative easing. Investors will also pay close attention to the daily tally to gauge whether the target will be reached, with countries being seen to exit the health crisis first expected to be rewarded by foreign exchange investors in the medium to long term.
The US Dollar has lost footing once again amidst a slower start to vaccine rollout, continued political tension and a ten-year treasury auction in the US which triggered falling bond yields. The House of Representatives may impeach President Donald Trump for incitement of insurrection after Vice-President Mike Pence rejected calls to use the 25th Amendment to remove Trump from office. Concerns about violence surrounding Joe Biden’s inauguration are heightened, but markets are placing their focus on the incoming administration's economic priorities versus the outgoing one.
As a result, the GBP/USD has moved up 1.2% from yesterday’s low and traded close to the highest levels we’ve seen since May 2018 before meeting resistance. The GBP/EUR has edged higher through yesterday and this morning, gaining 1-cent and earning a 6-week high.