GBP / USD hits new 2020 highs at 1.3625

• GBP / USD has risen throughout the day on Wednesday as the US dollar has come under pressure.
• The pair recently hit new yearly highs at 1.3625.
• The GBP is among the best performing G10 currencies today amid UK vaccine optimism.

He GBP/USD recorded new annual highs at 1.3625 in recent operations. The pair has moved higher amid widespread USD weakness and has now completely reversed the “sell the fact” losses seen in the wake of last week’s Brexit deal that saw the pair drop as low as 1.3435. . Currently, the pair is trading with gains above 120 pip or 0.9% on the day.

GBP among the best of the G10

The British pound is one of the best-performing G10 currencies on Wednesday, trailing only the AUD (which is up 1.0% against the US dollar). Some positive developments appear to be giving the currency a boost. First, the vaccine news has been good; the AstraZeneca / Oxford University vaccine was approved and will begin shipping next week and the UK has chosen to speed up the vaccination process by postponing the second dose of Pfizer for those who have already received the first dose; this second dose will now be someone else’s first dose (this move makes sense given that the first dose alone is 91% effective in preventing Covid-19 and the second dose only increases this to 94%).

The fact that the UK is one of the leading countries in the world with respect to the percentage of the population already vaccinated could be a factor supporting the GBP in the future. Meanwhile, while there was initially a “sell-off” backlash when confirmation that a Brexit deal had been struck was broken last week, this has now been largely resolved. “The combination of the deal and the vaccine launches means that the UK’s macroeconomic outlook for 2021 is much brighter,” says Danske Bank, who wouldn’t be surprised if the UK economy outperforms that of the eurozone next year. “We maintain our view that the Bank of England will keep the bank interest rate at + 0.1% in the near future and will not enter negative territory,” says the bank.

Speaking of the Brexit deal; EU leaders signed the deal early in the European session and the deal is currently working its way into the UK Parliament, where it has not yet done so and is not expected to face any setbacks. Markets await a smooth approval and implementation of the deal, ensuring that (relatively) frictionless trading can continue in January 2021.

Risks for GBP

While the aforementioned factors, namely the rapid implementation in the country of its mass vaccination program give cause for celebration, there are reasons to be cautious. While vaccine news made headlines in the UK on Wednesday, the dominating story was the country’s shift to tighter lockdown restrictions (most of the country will have been placed at Level 4, the current level highest since 00:01 GMT Thursday).

The government keeps open the possibility that stricter measures may still be imposed, given the recent increase in new cases reported daily above 50,000. The question of whether or not the schools will be allowed to reopen is also open. The spread of the new, more transmissible strain is clearly having an impact. Most analysts now see that the country remains in one form or another of relatively strict lockdown for at least the first quarter.

Meanwhile, while Wednesday might have seen a modest return of some Brexit optimism, the same questions about the quality / completeness of the deal still linger. Brexit negotiations will continue in 2021, as there is still no deal to cover trade in services, which accounts for 80% of the UK economy.