A traumatic 2020? Not for those cable traders looking for volatility. GBP/USD hit historic lows in response to the coronavirus crisis, changed its reaction function to printing money, and provided endless Brexit-related movements.
With Trump, Brexit – and eventually coronavirus out of the door – will things calm down 2021? The fading out of these three factors will likely lead to a calendar comeback – serving as the judge of the vaccine’s impact, Brexit, and government policies on both sides of the Atlantic.
GBP/USD Price Analysis 2020: Coronavirus outweighs Brexit and Trump
“When you lose, don’t lose the lesson.” The Dalai Lama’s words of wisdom are relevant to newbie traders – and for seasoned ones as well. The past year has seen a range of over 2,000 pips in GBP/USD, as well as how markets respond and lessons to take forward.
A turbulent year in pound/dollar, here is the daily chart:
Coronavirus hits hard and high
One dark weekend in northern Italy in late February was when markets fully came to grips with a virus that previously only put Wuhan on the map. Coronavirus triggered a downfall that pounded the pound, sending it to 35-year lows against the safe-haven dollar.
Britain seemed to be caught off-guard. Prime Minister Boris Johnson hesitated before following other countries into lockdown and later came down with COVID-19, including a spell in intensive care. His recovery in April, at a time of massive fiscal and monetary support on both sides of the Atlantic, marked the grand comeback.
UK economy’s fall and rise in response to covid:
Britain was more prepared for the winter wave of the virus. Despite Johnson’s second lockdown hesitance, investors seemed to worry more about London’s status and Brexit (see later) than the new economic damage.
The UK was more successful with the covid vaccine announcement – and its dual positive effect on GBP/USD. The government secured agreements with a wide variety of pharma firms, including its homegrown AstraZeneca. The first Western-world vaccinations also began in Britain after a quick regulatory approval of the Pfizer/BioNTech jab, boosting the pound – while every progress on immunization weighed on the safe-haven dollar.
Printing pounds ≠ printing dollars
The peak of the crisis caught the Bank of England transitioning from Mark Carney to Governor Andrew Bailey. The new chief slashed interest rates to 0.10% – the lowest in the “Old Lady” set in its 300+ year history on his fourth day at the job.
More importantly, the BOE more than doubled its bond-buying scheme in three moves, with the last one coming despite the parallel vaccine announcement. The pre-pandemic logic that creating money out of thin air devalues the currency vanished and made way for a new narrative – monetary funding would help the government support the economy in times of trouble. The announcements were coordinated with the Treasury and convinced investors of an efficient government keen to keep the economic engines running.
On the other side of the pond, the old logic prevailed – printing greenbacks devalued the dollar, as it also reduced the flight to safety. The Federal Reserve boosted its balance sheet by some $3 trillion and at a rapid clip.
The Fed’s balance sheet: