GBP/USD: Sterling to succumb to dollar strength amid growing expectations for a roaring US economy

GBP/USD has been whipsawed by febrile Fed-driven moves in yields. US yields remain in the spotlight for markets and they are set to be influenced by new US stimulus, final GDP and other data. In the UK, a vaccination slowdown, jobs and retail sales figures are of interest, FXStreet’s Analyst Yohay Elam briefs.

Key quotes

“Around 38% of Brits have received at least one vaccine dose – and only 2.6% the second dose. With supplies now slowing, the government has shifted to prioritizing second jabs for the vulnerable. Additional progress would be positive for the pound and a near-halt would cause concern. EU-UK frictions around movements of doses from one side of the Channel to the other have mostly hurt the euro. However, if concerns around AstraZeneca's vaccines snowball, the pound would suffer as well.”

“Economists expect the Unemployment Rate to have remained stable in January at 5.1%, amid ongoing support from the government's furlough scheme. Wage growth is also projected to remain robust. As the first reopening came only in March, material changes in jobless claims for February are unlikely.”

“Retail Sales figures for February are projected to show another month of declines, amid the ongoing lockdown last month. Perhaps there is room for an upside surprise as hope for a return to normal was already in the air, and may have impacted consumers.”

“The distribution of stimulus checks from the $1.9 trillion coronavirus relief package is yet to conclude – but additional expenditure is already in the works. The White House is mulling a large infrastructure spending bill. If more details come out, it could push yields higher and carry the dollar with it. On the other hand, if President Joe Biden focuses on other policies such as voting rights, the bond sell-off could take a break.”

“America's vaccination campaign continues moving at a rapid clip, with around 23% of the population having already received one shot. The timetable for reaching the majority of the population has squeezed with the US set to reach the 50% mark by mid-May. Ongoing progress would boost the dollar while any potential setbacks would do the opposite.” 

“Federal Reserve Chair Powell will have additional opportunities to impact markets with no fewer than three speeches. A handful of his colleagues will also be doing the media rounds. Any comments on yields will be closely watched, and so will remarks on the economy. Hints of early tightening would cause jitters, but Fed officials will likely refrain from going down that route.”

“On Thursday, Final Gross Domestic Product figures for the fourth quarter will likely confirm an annualized increase of 4.1%, but this relatively stale figure will probably be overshadowed by weekly jobless claims. Applications jumped to 770,000 and will likely drop.”