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Recovering USD Pushes GBP Below 1.35 for 1st Time in 2021

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The pound was among the risk assets hurt by the recovering dollar on Monday, falling below 1.35 in early trading, as Britains chief medical adviser warned that the next few weeks of the pandemic will be the worst yet.

Widening U.S. Treasury yields and the expectation of more fiscal stimulus lifted the dollar against its rivals.

Britain will open seven largescale vaccination centres on Monday as part of the governments plan to deliver to COVID19 shots to all vulnerable people by midFebruary.

But the next few weeks of the pandemic will be the worst so far in terms of people hospitalised, the governments chief medical advisor, Chris Whitty, said.

As market participants weigh up the economic impact of the virus against progress on the vaccine front, the possibility that the UKs central bank will introduce negative interest rates is being priced in for as early as May 2021.

Bank of England policymaker Silvana Tenreyro will give a speech about negative rates at 1400 GMT.

Although increased fiscal support has weakened the case for a quick rate cut, the UK has still been one of the countries worst affected by the pandemic, wrote RBC strategists in a note to clients.

Combined with the negative effects of Brexit, it means we continue to expect that the Bank will ultimately be forced to take rates negative, they added.

FX analysts at ING said that the pound will have to brace itself for headlines about negative rates when Tenreyro speaks.

GBP will be vulnerable to…

AUD, NZD Weaker, Investors Lured Away by Higher U.S. Yields

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