Short term bias is remain total to the downside due to the strength on the dollar but in the medium term our bias is still firmly to the upside and these are the fundamental reasons:
1. Monetary policy: the last BOE meeting affirmed the earlier suspicious that the bank is no longer looking at negative interest rates anytime soon which has seen markets pricing out a move into negative rate territory later this year. 2. Vaccine program: the UK continues to lead the G7 pack in terms of their vaccine program as the UK has already vaccinated 30% of the population. This lead is positive for the UK as it means they should be able to hit the ground running with their economic recovery and gives them a big advantage compared to places like the EU in terms of relative growth dynamics. 3. Last GDP data has shown that the economic has been more resilient that previously expected. Even though most, if not all, of the Q4 gains have been wiped out with new lockdown measures, it does bode well for the eventual recovery once the majority of the population has been vaccinated. 4. On the dollar side the FED’s ultra-easy policy and average inflation targeting means that even if there is the chance of relative growth outperformance and inflation that higher rates are still a long time away, which should keep pressure on the dollar in the med-term .