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Feb 14 - 11:55 PM

GBP/USD - COMMENT-COVID-19 Control And EU Trade Key For Rising Sterling

By Andrew M Spencer  —  Feb 14 - 09:43 PM

Sterling hit a fresh 1.3901 trend high in Asia Monday, after recording five weeks of gains. How the UK government unwinds COVID-19 restrictions and Brexit's negative consequences on trade with the European Union will be key factors for the pound.

GBP/USD has been resilient in 2021, falling modestly when the USD bounces and climbing on USD weakness, thanks in large part to the UK's efficient and timely vaccine rollout and the subsequent faster economic recovery, following poor control of the coronavirus.

The latest data on Sunday showed a drop in new COVID-19 deaths and infectionsnS8N2JO049, while the UK hit 15 million vaccinations as pressure builds to ease the lockdown nL1N2KK0C2.
Key for the pound will be whether the government has learnt from 2020, or whether they succumb to calls to lift coronavirus measures early, and the virus again escapes control.

The other risk for sterling is the economic impact of Brexit, which the government appears to be under-playing. Trade frictions over the Irish border continue nL1N2KG004, though the UK and EU are working on it nL1N2KH3KY.
There is also growing evidence that increased bureaucracy after leaving the EU will be a drag on the UK economy; the British Chamber of Commerce says nearly half of UK goods exporters have faced Brexit trade problems nL8N2KG5RR.

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Source:
Refinitiv IFR Research/Market Commentary

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