GBP/USD : Early Year Lockdown

(Tue, 5 Jan 2021). GBP/USD is modestly firmer in early European trading Tuesday, recovering some of Monday’s steep losses and suggesting that the upward trend in the pair is still in place.

ENGLAND ENTERING LOCKDOWN, VACCINES AND GEORGIA SENATE RACE IN FOCUS

The latest move seems to be a reaction to news that England is to enter lockdown again from Wednesday, with similar moves introduced by the other UK nations: Scotland, Wales and Northern Ireland. The Covid-19 vaccine rollout in the UK also seems to be supportive of GBP.

However, a more important driver of the pair could be the results of the two runoff elections in Georgia that will decide control of the US Senate. If both seats are won by the Democrats, President-elect Joe Biden’s party will have control of both houses of Congress, helping him to introduce new legislation.

The likely reaction in USD to the results is unclear but it could weaken if the Democrats win both seats as they would likely introduce a larger fiscal stimulus program that would also reduce safe-haven demand for the US currency.

For GBP/USD this could mean a rally back to Monday’s highs just above 1.37, with near-term support at Monday’s low of 1.3542.

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