Britain is one of the countries most affected by COVID-19, so its desire to vaccinate the population and develop herd immunity as soon as possible is understandable. How will this affect GBPUSD and EURGBP? Let us discuss this topic and make up a trading plan
Monthly pound fundamental forecast
At the moment, investors should pay maximum attention to the vaccination process. Lifting of lockdowns, the speed of economic recovery, and central banks’ readiness to move towards normalization of monetary policy depend on the success of the vaccination campaign. In this respect, the success of the pound looks more than logical. The UK has got down to business, which cannot but inspire GBPUSD bulls and EURGBP bears.
You can’t say that Britain is ahead of the rest of the world. Vaccination rates in Israel, Saudi Arabia, and Bahrain are impressive, but the country is second to none in Europe. In late December, 5.9% of the UK population was vaccinated. For comparison, in Denmark – the best continental country in Europe in terms of vaccination rates, this figure was 2.8%. London is not stingy with spending money (the UK government has spent £280 billion to combat the pandemic, including £11.7 billion to the purchase, manufacture, and deployment of Covid-19 vaccines) and intends to increase the number of vaccinations to 15 million by mid-February. By the beginning of May, about 60% of the population will be inoculated, which is quite enough to develop herd immunity.
UK vaccination rate
Source: Financial Times.
Immunity is developed not only by the UK’s residents but also by the economy. In November, it sank 2.6% M-o-M, while Bloomberg experts forecast -4.6%. A second lockdown was introduced in the UK in early November, but a double-dip recession in the fourth quarter was most likely avoided due to the manufacturing sector. For the worst-case scenario to come true, in December, the GDP should drop by 1%, which is unlikely in the context of a partial opening of the economy.
UK GDP dynamics
Source: Financial Times.
As a result, GDP forecasts for 2020-2021 are improving, which reduces the likelihood of introducing negative interest rates by the Bank of England and contributes to strengthening the pound against major world currencies. What’s more, BoE chief economist Andy Haldane believes that vaccination successes will boost the UK economy in the second quarter. As a result, according to the expert, more than 1 million people who lost their jobs due to the pandemic and recession will be able to return to the labor market.
In my opinion, if the European Union doesn’t accelerate the vaccination process, the EURGBP downward movement in the direction of 0.875-0.88 risks continuing. The EU, with a population of 450 million, is facing criticism because the authorities ordered only 300 million doses of Pfizer/BioNTech vaccine. This will be enough to vaccinate 150 million people by the autumn. According to critics, it was necessary to buy ten times more vaccines, spending €20-30 billion – an insignificant amount compared to the cost of European lockdown.
As for the GBPUSD, the strategy of buying the pair on pullbacks with targets in the zone of 1.40-1.42 is still an excellent option. I see no reason to refuse it. Continue to use corrections to open the pound long positions.
Price chart of GBPUSD in real time mode
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