Pound sterling continues to gain against other major currencies as the risk of a hard Brexit is now off-table. Last week, the currency also got a boost after Bank of England ruled out negative interest rate anytime soon. The Brexit issue has dominated the past few years. However, Pound Sterling now may finally start to react to domestic drivers on the economy and monetary policy.
The currency further gained support due to the optimism of UK’s vaccination programme. UK is one of the first countries which starts a vaccination program in a race to contain the more contagious variant of coronavirus. The government aims to vaccinate 15 million people by mid February and millions more by spring. Then by autumn, the rest of the adult population will receive vaccination.
With vaccines being rolled out at an accelerating pace and the expectations that there will be easing on the lockdown from March, the likelihood of interest rate cut and negative interest rate has dropped. Pound Sterling is expected to find support as the UK economy recovers in Spring and Bank of England steps further away from cutting interest rates.
EURGBP Daily Chart
Daily chart of EURGBP above shows that the pair has broken below the trend line support from 4.30.2020 low. In addition, it shows an incomplete bearish sequence from 9.11.2020 high and 12.11.2020 high, calling for more downside. A 100% – 161.8% extension from 9.11.2020 peak calls for a move lower towards 0.8538 – 0.8801. Another possible target is a 100% – 161.8% extension from 12.11.2020 peak which calls for a move lower to 0.8608 – 0.879.
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