GBP/USD slips back under 1.3700 as week draws to a close

Liquidity is dropping off and news flow slowing down as a very choppy week draws to a close. GBP/USD is ending the session towards the upper end of this week’s range and has just slipped to the south of the 1.3700 level, back from session highs of closer to 1.3750. For the most part, trade has stuck within a 1.3640ish-1.3750ish range, in fitting with a broadly indecisive tone seen in FX markets.

GBP this week

GBP has actually been one of the better performing G10 currencies on the week, with GBP/USD one of the only G10/USD major pairings to actually be on course to finish the week in the green. A few factors might have contributed to mild GBP outperformance;

1) The UK maintains it large lead over most of its developed market peers in terms of percentage of the population to have received at least one Covid-19 jab, raising the likelihood of a comparatively soon economic reopening drive that might see the UK economy outperform in 2021.

2) The vaccine delivery delays that have thus far plagued the EU are yet to impact the UK (though the EU might be about to make this the UK’s problem by clamping down on exports of Pfizer vaccines from the Belgium factory to the UK).

3) UK infection rates continue to drop, with the latest figures showing infections at 29K, well below the recent peak of close to 70K new confirmed infections per day, boding well for the prospect of a drop off in the daily death toll and reduction in pressure on health care services in early February.

4) Markets continue to wind down their bets that the Bank of England will take interest rates into negative territory.

Driving the day

Month-end flows seemed the dominant force in FX markets on Friday; whilst stocks fell, risk-sensitive currencies NOK, CAD and NZD all managed to make decent gains - Usually these currencies would fall in line with stocks. Meanwhile, despite stock market downside, JPY was the worst hit currency. GBP appeared to largely avoid much by way of any month-end volatility and did not see much action around the time of the final 4pm London Fix of the year.