GBP/USD surges back towards weekly highs above 1.3850 as USD swoons

• GBP/USD has surged back above the 1.3850 mark in recent trade, a strong recovery from earlier lows under 1.3780.
• Vaccine optimism continues to fuel GBP outperformance versus its G10 currency peers.

GBP/USD has surged back above the 1.3850 mark in recent trade, a strong recovery from earlier European session lows under 1.3780, and the pair is now eyeing a test of weekly highs at 1.3866. Driving the upside in recent trade has been a broad decline in the US dollar, which prior to the start of US trading hours, had been the best performing currency on the day, but now sits in the middle of the G10 performance table.

Pound sterling has replaced USD as the best performer on the day, with GBP/USD up around 0.3% or around 40 pips. On the week, GBP sits in third place out of the G10 currencies, up around 1.0% versus the US dollar (roughly equal to NOK and slightly behind AUD, which is up 1.2% versus the US dollar on the week). No specific news or updates seem behind sterling’s outperformance and market commentators are thus likely to refer back to the UK’s strong fundamental backdrop.

Strong UK fundamentals

The UK has now vaccinated over 14M people and continues to extend its lead in terms of percentage of its adult population vaccinated versus its developed market peers. On 11 February (prior to when the UK surpassed the 14M mark in total vaccinations), the UK had administered over 20,000 vaccines per 100,000 of its population. In the US, that number stands just above 13,000. Eurozone countries lag woefully, with only Denmark having vaccinated more than 5000 per 100,000 of its population as of 11 February.

Positive data from Israel was released on Friday; of the 523K people vaccinated by the Maccabi Healthcare Services, only 544 had tested positive for the virus and of these, only 15 were hospitalised. None died. Israel has been using the Pfizer vaccine and this data confirms that the vaccine is a real-world success, which is fantastic news in the fight against the virus.

Assuming that the AstraZeneca vaccine also lives up to expectations (which recent data collected by Oxford Academics on the efficacy of the vaccine in the UK suggests it will), the UK stands in a strong position to be able to aggressively reopen its economy once most the adult population has been inoculated (hopes are this will be achieved by the end of June). UK economic outperformance is likely to then follow and this has, is and will probably continue to support GBP, at least in the medium-term future.

USD stumbles into the end of the week

As with GBP, no news can specifically be pointed to as to why the US dollar stumbled during US trading hours. Things have certainly been stacked against the US dollar this week, however; US Consumer Price Inflation data released on Wednesday was soft (USD negative) and Fed Chair Jerome Powell and other Fed speakers have all come across as very dovish and eager to reassure markets that accommodative policy is here to stay for a long-time (USD negative).

Meanwhile, stocks continue to look perky (bad for safe havens such as USD) and commodities continue to surge amid commodity “super-cycle” chatter (good for commodity-linked FX, bad for USD). Quants at JP Morgan said “we believe that the last (crude oil) super-cycle peaked in 2008 (after 12 years of expansion), bottomed in 2020 (after a 12-year contraction) and that we likely entered an upswing phase of a new commodity super-cycle”.