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Latest GBP USD Analysis and Forecasts

Bullish into 2021 with blue sweep confirmed

Macroeconomic/ geopolitical developments

  • The Democrats won both seats in the Georgia Senate runoff elections from Wednesday, confirming a “blue sweep”, the Democrats now taking control of both houses of Congress alongside the presidency.
Georgia Democrats
  • Then, Thursday saw unprecedented and shocking events in Washington DC, with Trump supporters storming the Capitol building.
DC Riots
  • The fact that President Trump appeared to incite this activity has seen his social media accounts with Twitter, Facebook and Instagram shutdown.
  • Various US politicians are looking for the President to be removed even before the inauguration of President-elect, Joe Biden on 20th January.
  • There is risk of another impeachment or for the President to be removed via the 25th Amendment, though neither seem likely given the short timeframe.
  • Global PMI data were mixed, whilst the Non-Farm Payroll data in the US Employment report missed consensus (-140K, with +71K expected).
  • COVID-19 cases, hospitalisations and deaths in Europe, the US and globally continue to surge.
  • National lockdowns in Europe put in place from late 2020 have yet to have a significant impact on the spread of the coronavirus in this wave.
  • The various vaccine rollouts are continuing globally, with the Moderna vaccine having now been added to the list.

Global financial market developments

  • The ‘blue sweep” saw US and global stocks push higher, though with growth stocks underperforming value and cyclical shares.
  • This underperformance was due to the anticipation of legislation to curb the strength of the large, new media, tech companies.
  • The major US equity indices did hit record highs, with the DAX also at an all-time high, whilst the FTSE 100 posted an impressive 6% rally for the first week of 2021.
  • The expectation of reflationary fiscal spending from the Democrats fuelled the view of a reflation trade, and alongside stock market gains saw a surge in US (and to a lesser extent global) yields, with the US 10-year Note pushing above 1.0%.          
  • The US Dollar did stage a modest rebound from its weakened position, most notably within G3 (versus the Euro and Japanese Yen), driven by wider yield differentials.
USDJPY
  • Risk currencies” did push higher early last week with the Australian, New Zealand and Canadian Dollars all strong, before setting back.
  • GBPUSD now looks vulnerable to a downside correction.
  • In the commodity space, Oil and Copper were significantly higher to start the year, benefiting from the reflation view.
  • Gold plunged lower with the higher US and global yields and the stronger US Dollar.

Key this week

  • Geopolitics:
    • Political events and potentially more conflict will be closely monitored in the US into the inauguration of President-elect, Joe Biden on 20th January.
    • Markets will monitor further vaccine delivery announcements and approvals.
    • COVID-19 cases, hospitalisations and deaths stay in focus in Europe and the US.
    • Watching for new lockdown measures.
  • Central Bank Watch: No central banks in action.Fed’s Powell speaks on Thursday.
  • Macroeconomic data: A very quiet data week with the standouts being the US CPI and Retail Sales on Wednesday and Friday respectively, with UK GDP also Friday.
DateKey Macroeconomic Events
11/01/21Australian Retail Sales; China CPI
12/01/21Nothing of note
13/01/21US CPI; Fed’s Beige Book
14/01/21China trade data; German GDP; US weekly Jobless Claims; Fed’s Powell speaks
15/01/21UK GDP, Industrial & Manufacturing Production; US Retail Sales

Please join the GBP USD discussion


    1. The Pound (GBP) is falling against most currencies today due to the release of the UK GDP, Manufacturing and Industrial Production data. Practically all elements of the is report were negative, with the quarterly contraction in GDP the first since 2012 indicating a weakening economy.
      This layers on top of ongoing fears about a “No Deal” Brexit and the threat that the Bank of England may need to cut interest rates. All of these factors are negative for the currency, hence the move lower for GBPUSD and GBPJPY, plus the move higher for EURGBP.
      Also, from a technical analysis perspective, GBPUSD, EURGBP and GBPJPY are moving to multi-year extremes, which sends a negative signal for GBP.
      Hope this helps, please revert with any further questions.

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