GBP/USD: Uphill road may be bumpy

GBP/USD has been advancing amid the EU deal and moderation in US coronavirus cases, and UK vaccine hopes but a brewing political scandal and Brexit uncertainty may limit gains, Yohay Elam, an analyst at FXStreet, informs.

Key quotes

“The University of Oxford and AstraZeneca announced that the Phase 1/2 trial of a COVID-19 vaccine candidate proved safe and effective, providing hope for administering immunization to Brits and others within a year. The Lancet, which published the results, hailed the British achievement and also criticized the government's plan to hoard the vaccines. For investors, the potential for more rapid deployment of a vaccine to Brits is a boost to the pound.” 

“Another reason for markets' cheering is the EU deal – not on Brexit, but on a recovery fund. After five months of crisis and nearly five days of exhausting talks, leaders in the old continent found a compromise. The bloc will deploy some €750 billion in funds and higher demand from the continent could also help the UK.”

“The pound may be in peril when Britain later releases a report on Russian meddling in UK politics. PM Boris Johnson's Conservatives have ties to donors originating from Vladimir Putin's country. Any suspicion of influence – especially in the 2016 EU Referendum – would hinder the ability of the government to act and potentially weigh on sterling.”

“Another factor that may weigh on the pound also comes from abroad – tensions with China have deteriorated after the UK canceled its extradition treaty with Hong Kong. China vowed to retaliate on this topic and also in response to Britain's decision to phase out Hauwei technology.”