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Extended lockdown knocks the pound

GBP - British Pound

The UK will remain in a form of lockdown for at least another six weeks, the Prime Minister has confirmed. Speaking at the House of Commons, Boris Johnson will now start to set plans for a gradual and phased route out of lockdown the week commencing February 22nd.

Schools, which were set to reopen after the February half term, are now looking at March 8th at the earliest. Sterling fell against both the EUR and USD on the news. GBPUSD, which declined yesterday in anticipation of the federal fund rate and FOMC statement, dropped from 1.3757 to 1.3635 at time of writing. GBPEUR has seen a similar move going from 1.1341 to 1.1273.

Sterling is likely to be driven by the recent lockdown news today with little macroeconomic data coming from the UK.

Data elsewhere shows that Britain’s new relationship with the EU is showing early signs of disruption. Manufacturers and services firms have recently been hit hard by supply chain and export disruption, according to data company IHS Markit. The teething problems are said to be exacerbated by the COVID-19 pandemic and could reduce the British economy by 1% in the first quarter of 2021, international monetary fund chief economist Gita Gopinath said on Wednesday.

Key Movers

Federal Reserve officials left their benchmark interest rate unchanged yesterday and repeated it would maintain its bond-buying program at the current pace of $120bn of purchases per month. Although a moderate US recovery was flagged, substantial further progress towards employment and inflation goals would need to be seen for this to change. This alluded to reports showing that employment fell in December for the first time since April, and retail sales tumbled for a third month with the resurgent COVID-19 outbreak across the country.

The news seems to have disappointed the market, with many hoping for guidance on tapering the current bond-buying program. This has seen the risk switch flick from on to off and safe haven currencies like the USD, CHF and JPY being bought by investors. GBPUSD has been as low as 1.3635, EURUSD is back below 1.2100 and AUDUSD is under 0.7600 this morning.

Expected Ranges

GBP/USD: 1.3610 - 1.3720 ▼

GBP/EUR: 1.1230 - 1.1310 ▼

EUR/USD: 1.2060 - 1.2120 ▼

GBP/AUD: 1.7860 - 1.8090 ▲