Pound Sterling Jumps to Pre-Brexit Zones Amid Steadily Rising Risk-On Outlook

Since the start of the pandemic, the pound has behaved more like a risky asset than a safe haven. Much of the recent gain in the pound has been linked to the signing of the Brexit agreement between the UK and the EU ahead of Christmas and the weakness of the US dollar.

The steadily growing risk prospects persist today, even as the US and China are on vacation. Sterling is leading the way as Prime Minister Boris Johnson pledged to detail his roadmap for exiting quarantine on February 22.

The Bank of England recently moved away from using negative interest rates and, according to recent forecasts, cannot expand its purchases under the QE. At the same time, the Fed and the ECB are likely to continue their quantitative easing programs for at least another year. This could push up interest rate expectations in the UK versus the US and the Eurozone, pushing the pound higher.

The pound/dollar has consolidated its recent strong gains to its highest level since April 2018 and has hovered above 1.3900 during the European average. The slightly overbought RSI on the short-term charts seemed to be the only factor keeping the bulls from taking new rates and limiting the upside potential for the major ones.

The bullish outlook is underpinned by the prevailing selling bias in the US dollar, which remains subdued amid underlying bullish sentiment in financial markets. Consequently, a subsequent move to the 1.3960 intermediate resistance on the way to the key psychological level 1.4000 now looks quite likely.
UK Prime Minister Johnson Pledges Lockdown Exit Roadmap
British Prime Minister Boris Johnson said on Monday that they do not yet have enough data on how coronavirus vaccination affects transmission rates. These comments do not seem to have a noticeable impact on the dynamics of the British pound in relation to its main competitors. At the time of writing, GBP/USD is up 0.5% on the day to hit 1.3919.

The rapid introduction of the vaccine in the UK has improved the economic outlook over its peers, especially in the EU. As a result, investors may start giving preference to British assets over other assets, putting upward pressure on the pound.

The British Prime Minister said on Monday that they have not yet decided on the exact date of the schools’ opening and added that they will do their best to reopen the schools on 8 March.

Boris Johnson and key advisors are today beginning to pave the way for a way out of the constraints that have kept millions locked up and separated for nearly a year.