GBP/USD to stay steady as vaccination continues, but covid variants pose downside risk – CIBC

FXStreet Insights Team FXStreet

Vaccine rollout and re-openings should leave sterling steady as the spread of the Delta COVID-19 variant poses a downside risk, Jeremy Stretch, Head of G10 FX Strategy at CIBC Capital Markets, reports.

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“The rapid UK vaccine rollout, with almost 50% of the adult population now fully vaccinated, will be central to our projection for strong consumer-led growth over the next 12 months. We agree with the view of the outgoing BoE Chief Economist that an atypical recession should result in an atypical recovery. That points towards an early reversal of ultra-easy monetary policy compared to that seen after the global financial crisis.”

“Markets have moved to price in the prospect of the BoE reversing the 15bps emergency rate cut from March 2020 by November 2022. However, should consumer spending data suggest a much faster rebound, and should the UK labour market withstand the progressive removal of policy support via the jobs retention scheme, the prospect of an even earlier policy reversal is likely to grow.”

“Strong consumer led activity, impacting the rate cycle, should provide support for the currency, which should hold relatively steady against the USD but outperform the euro and yen.”

“The key risk is the rising tide of Indian variant Covid cases blowing the re-opening timetable off course. The variant doesn't appear that resistant to those who have completed their vaccination program, so in the race between vaccinations and the virus, we favour the former.”

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FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

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