Both the Eurozone and Britain are likely to face a double recession in the first quarter. Nevertheless, the pound, unlike the euro, is growing. Even in relation to the US dollar, which is backed by the economy, there is no doubt that it will recover in 2021. The reason lies in the speed of the vaccination. While continental Europe is debating whether to vaccinate those over 60, the number of doses is increasing in Britain.
Boris Johnson made a mistake of not recognizing the coronavirus, during the onset of the spread of COVID-19 in Europe, for which he owes in the lives of more than 100,000 UK citizens. The prime minister's desire to atone for his guilt is driving aggressive vaccination in Britain. At the end of January, 9.5 million people, or 14.2% of the population, received doses. The government plans to bring the figure to 15 million by February 15. Considering that 600,000 people were vaccinated on one day, last January 30 (a new record), we can expect that this will happen.
Unlike Britain, the countries of continental Europe, including Germany, are pulling the cat by the tail, arguing whether it is worth vaccinating the population over 60 years old. Also, supply problems lead to the fact that even in Denmark, which is the leader in the number of doses per capita, the figure does not reach 4.5%. The slower herd immunity is developed, the lower the chances of lifting lockdowns and rapid GDP growth. Unsurprisingly, EUR/GBP slipped to the 8-month low.
The pound certainly has enough problems. Along with the recession and talk about negative rates of the Bank of England, a possible referendum on the independence of Scotland hangs like a sword of Damocles over the sterling. Boris Johnson was even forced to travel north and explain to opponents of the union that events such as the voting 7 years ago happen once in a generation. And that only England, Scotland, Wales, and Northern Ireland, will be able to defeat the pandemic.
As for the Bank of England, only 1 in 14 Bloomberg experts expects it to lower the repo rate below zero. Even if the situation in the British economy continues to deteriorate. From the meeting of the central bank on February 4, a decrease in forecasts for GDP for 2021 is expected and their proportional increase for 2022.
UK GDP dynamics
In my opinion, the pound stubbornly turns a blind eye to the negative and grows on expectations. Investors seriously expect Britain to be one of the first to defeat the pandemic, at least in Europe. This will allow the economy to open the doors to households, whose savings are estimated at £150 billion. Also, domestic tourism and the government's intention to spend another £280 billion on economic recovery after COVID-19 can provide support for the GBP/USD, as evidenced by Reuters Insider.
Technically, there is no reason to doubt the strength of the GBP/USD upward trend. The pair is confidently heading towards the 161.8% target following the AB=CD pattern, which corresponds to the 1.4 level. The strategy of buying sterling on the reduction of quotes, announced in early January, works like a clock. So is it worth giving it up?
GBP/USD, daily chart
