GBP/USD Moves Higher on Tuesday, Dollar Depreciates

12 Jan 2021 · 3rd Party Analysis

WRITTEN BY ThorFX

In Summary

  • The sterling experiences yearly low
  • Economic performance set to deteriorate

The GBPUSD pair is moving to the upside in the early hours of European trading as the US dollar has put on hold its quest for higher grounds. The British pound has been trading mixed against the dollar since the start of the year. The exchange rate opened for trading in 2021 at 1.3658 and briefly spiked above 1.3700 before coming down and fluctuating during the last few days in the range between 1.3600 and 1.3500.

The pound made a yearly low yesterday, reaching 1.3451. GBP bulls were quick to support the currency and managed to bring the GBPUSD to a Monday close of 1.3519. On Tuesday, the pair slipped during the Asian session to a low of 1.3504 but is now trading higher in the area of 1.3560 – 1.3590.

The pair is trading lower for the year after the Brexit negotiations produced a mixed outcome that was not enough to bring new buyers and keep the GBPUSD afloat and moving higher. However, the pair has made significant progress since March last year when it was trading near the 1.1400 mark. The GBPUSD has staged a strong recovery of nearly 20% from March to the present day. The retracement taking place so far this year could be seen as a healthy pullback and a chance for market participants to reassess the situation and to adjust to current economic and political developments.

Activity Restrictions Impact the Pound

The British economy is bound to take a hit from the ongoing activity restrictions due to the new surge in coronavirus cases alongside a spike of the new virus variant. The country is now in its third national lockdown and even with the vaccine distribution picking up the pace, coronavirus cases amount to nearly 60,000 on a 7-day average. On Jan 4, Prime Minister Boris Johnson announced that the current lockdown would remain in place at least until Feb 15. On Monday, the UK Health Secretary Matt Hancock warned that further restrictions are being considered, while also saying that the government is on track to achieve its goal of offering the vaccine to the four priority groups, a total of 15 million, by Feb 15. So far, nearly 3 million people have been vaccinated in the UK.

Additionally, UK Chancellor Rishi Sunak appeared in parliament on Monday and warned that “the economy will get worse before it gets better”. Mr. Sunak emphasized the fact that the economic performance will get worse as a result of the Covid restrictions and will start to improve only after the vaccination rate is higher. “The road ahead will be tough. Now is the time for responsible management of our economy, taking the difficult but right long-term decisions for our country,” he said in his first speech in the Commons since the third lockdown took place.

Recent announcements by British policymakers cast a shadow on current economic trends in the UK, but sterling traders seem confident today that the British currency still has room for improvement as it is appreciating against most of its peers. The GBPCHF is up nearly 0.70% in early European trading, the GBPJPY is also higher by 0.70%, while the GBPUSD is up a little over 0.75%.

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