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Sterling Q1 2021 Forecast: Starting to Look a Better Prospect

Sterling Q1 2021 Forecast: Starting to Look a Better Prospect

Nick Cawley, Strategist
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  • EU/UK Terms of Trade
  • Bank of England (BoE) – Ready and Willing to Write More Cheques
  • Covid-19 – Vaccination Program Key in Months Ahead

This year has been a difficult one for Sterling traders with the uncertainty surrounding Brexit compounded by the economic and human devastation caused by the coronavirus. Most of the UK remains in some stage of lockdown and while a vaccination program has begun, it will take months before the population has been inoculated against the virus. GBP/USD started 2020 around 1.3100 and is looking to the end the year less than a handful of points higher after making a v-shaped recovery from a virus low around 1.1400 in mid-March.

The first quarter of 2021 is likely to be more positive for Sterling as the path clears for moderate gains against a range of currencies. EU-UK trade talks will still draw headlines as ongoing work by both sides will be needed on any terms of trade. Meanwhile the Covid-19 vaccination program that began in December will raise expectations that by mid-year the country may be back on its economic feet and no longer in the grip of the virus. Sterling should benefit from this more benign background, but gains may not be as large as previously expected, as full scope of trade’s and economic activity becomes clear and confidence returns.

GBP/USD Daily Price Chart (April - December 18, 2020)

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