GBP/USD to stay steady as vaccination continues, but covid variants pose downside risk - CIBC

FXStreet reports that Jeremy Stretch, Head of G10 FX Strategy at CIBC Capital Markets, believes that vaccine rollout and re-openings should leave sterling steady as the spread of the Delta COVID-19 variant poses a downside risk.

“The rapid UK vaccine rollout, with almost 50% of the adult population now fully vaccinated, will be central to our projection for strong consumer-led growth over the next 12 months. We agree with the view of the outgoing BoE Chief Economist that an atypical recession should result in an atypical recovery.” 

“Markets have moved to price in the prospect of the BoE reversing the 15bps emergency rate cut from March 2020 by November 2022. However, should consumer spending data suggest a much faster rebound, and should the UK labour market withstand the progressive removal of policy support via the jobs retention scheme, the prospect of an even earlier policy reversal is likely to grow.” 

“Strong consumer-led activity, impacting the rate cycle, should provide support for the currency, which should hold relatively steady against the USD but outperform the euro and yen.”

“The key risk is the rising tide of Indian variant Covid cases blowing the re-opening timetable off course. The variant doesn't appear that resistant to those who have completed their vaccination program, so in the race between vaccinations and the virus, we favour the former."