Fresh Measures Announced

The British Pound is trading lower this week as markets react to the UK PM last night announcing a fresh nationwide lockdown in England. The new measures, which see the country returning to the level of restriction sin place over Q1 2020 at the start of the pandemic, are due to run until the end of February at the earliest. The PM highlighted that ending the measures will be entirely contingent on the government meeting its target of vaccinating over 13 million people by that date.

Along with the Pfizer-BioNTech drug which the government began rolling out ahead of the New Year, the Astra Zeneca - Oxford drug has now also started to be distributed. The government currently has a target of vaccinating around 2 million per week having so far averaged around 300,000 per week. The new measures and vaccination push come in response to a new strain of COVID which originated in the UK and has caused a dramatic uptick in infections and deaths. With hospital admissions for COVID now surpassing 50,000 for 7 consecutive days, the government is highly concerned of the NHS being overwhelmed, which is the disaster scenario it highlighted last year.

Fresh Fiscal Stimulus

With a fresh nationwide lockdown in place, there is now a high level of expectation that the BOE will be forced to ease further to help buffer the economy. The chancellor of the exchequer, Rishi Sunak, has already announced a fresh £5 billion in grants to help support struggling UK businesses and is expected to add to this in the coming months with further support for the self employed. The market will now be looking to the BOE to announce further measures.

BOE Easing Expectations

Towards the end of last year, the BOE was heavily discussing the implications of using negative rates. While the no-deal Brexit scenario has been avoided, the COVID backdrop has worsened materially and there is now a very real risk that the BOE will be forced to take further historic measures, reducing rates from the current record lows of 0.10% and potentially into negative territory. The BOE meets next on February 4th and will have a much clearer idea by then of the UK's performance over Q4 as well as how the economy is coping with a fresh set of lockdowns.

Traders will also be keeping a close eye on the government's performance in terms of meeting its vaccination targets. If the government is able to hit its weekly targets consistently, this should help offer some optimism of lockdown ending at the end of Feb. However, if targets are missed and the government is seen struggling, this will likely be interpreted as meaning that lockdown will continue longer, causing more damage to the economy.

Technical Views

GBPUSD

GBPUSD continues to trade higher within the bullish channel which has framed the recovery off 2020 lows. However, the move has become much more laboured on the rise above the 1.3191 level. Price is currently trading above the 1.3516 level support and, while above here, the near term view remains bullish with bulls looking for a breakout above the 1.3747 level next. To the downside, a break of the 1.3191 level will open the way for a test of 1.2704 next.

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