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GBP - FUNDAMENTAL DRIVERS

OANDA:EURGBP   Euro / British Pound
Fundamental bias: Bullish

1. Virus Situation

The UK’s vaccination success has been a key driver of positive sentiment for GBP from the start of 2021 and has meant the county is on the verge of completely removing covid restrictions. One short-term negative is recent concerns about the Delta variant which could see a 2-4 week delay in the planned reopening scheduled for June 21. This doesn’t change the fundamental bullish outlook, but it is a short-term negative that could weigh on Sterling.

2. The Monetary Policy outlook for the BOE

Recent positive reactions from market participants to hawkish comments from the likes of Haldane and Vlieghe has shown the market’s predisposition for expecting the BOE to be the next major central bank to move away from ultra-easy policy. As long as the economic data shows that the recovery in underway, the market should continue to expect faster policy normalization in the months ahead and should be a positive input for Sterling.

3. The country’s economic developments

The hopes of a possible faster economic reopening and subsequent recovery has seen both the BOE and IMF upgrade growth projections for the UK economy which has widened the growth differentials between other majors by quite a bit and is something that should continue to be a supportive factor for GBP as long as the data continues to show better-than-expected prints. Something that we should be mindful of here is that a lot of the positives that has driven Sterling higher in 2021 is arguably already be reflected in the price, but as long as the data continues to surprise to the upside the trend should be supportive for the GBP as it should provide further support for policy normalization from the BOE.

4. Political Developments

Remember Brexit? Yeah, me neither, but it came back into focus in the form of the recent punchy rhetoric between the UK and EU regarding the Northern Ireland Protocol. The EU reported that they will take a measured response to any further unilateral moves by the UK to delay implementation of the Northern Ireland Protocol. The risk to the current dilemma is that it forces the EU’s hand to retaliate with possible sanctions or tiggering retaliatory measures through the Trade and Cooperation Agreement. For now, markets are not too concerned about this as this is seen as the usual political posturing with the grace period for the Protocol is set to expire this month, but it could continue to weigh on short-term sentiment if we see more punchy rhetoric or significant retaliatory threats. As a result of the possible delayed reopening, as well as current positives reflected in recent price action, as well as the political concerns, we have adjusted our STRONG BULLISH bias for Sterling to BULLISH .

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good idea.
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