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Sterling Remains Resilient as England Enters into Lockdown

A new surge of Covid cases and a 3rd national lockdown for the UK but the Sterling appears unphased as traders and investors continue to hold the UK currency without any significant price fluctuation. Read on for a full synopsis of market events.

SageFX - Jan, 05, 21

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Principal Points

  • Tougher restrictions announced in the UK
  • Nationwide vaccination ongoing

Lockdowns & The Sterling

The Great British Pound is gravitating in the range of 1.3570 to 1.3600 on Tuesday as England is set to enter into its third national lockdown that is expected to last until February 15. The tougher Covid restrictions were announced yesterday by the UK’s Prime Minister, Boris Johnson. The move comes after a renewed surge of confirmed Covid cases as well as the rapid spread of the new and more infections variant across the UK. Additionally, the sharp switch in position comes after a new wave of accusations that PM Johnson has been acting irresponsibly and waited too long to impose harsher measures going into the winter season.

The third national lockdown for the UK includes immediate closure of schools and colleges while everyone in England must stay at home except for specific reasons such as essential work or buying food or medicine. In a televised address speaking from Downing Street, Mr. Johnson warned British citizens that the next few weeks would be the “hardest yet” and urged the nation to “pull together, now more than ever”.

PM Johnson assured the public that NHS workers are racing to deploy the vaccine to the top four priority groups; those that are clinically vulnerable, frontline health and social care staff, and people over 70 years of age. It is expected that they will receive the first dose by mid-February, the time when the current nationwide lockdown expires. Ideally, the government expects to have 13.9 million people vaccinated by Feb. 15. According to PM Johnson, if the UK can administer 2 million vaccine shots a week, the new lockdown will be terminated and the Covid surge would be successfully tackled.

Another Recession on the Horizon?

Even though the lockdown will have disastrous effects on the post-Brexit economy, according to PM Johnson, the most important thing now is to keep the NHS from becoming overwhelmed by the latest surge of confirmed cases and hospitalized patients. “Our hospitals are under more pressure from Covid than at any time in the pandemic”, Mr. Johnson added in his address. The new lockdown measures will be reviewed as the expiration date approaches.

The sudden harsher measures did not do any major harm to the Great British pound as traders and investors continued to hold the UK currency without any significant price fluctuation. The GBPUSD exchange rate on Monday reached a low of 1.3542, following an intraday high of 1.3704. The pair is now hovering around 1.3600, erasing some of the losses from yesterday. The Great British pound, however, could be in a vulnerable territory as the announcement of the emergency measures poses serious potential harm to retail and hospitality businesses, essentially threatening to push the UK economy into another recession.

The presumably late reaction by the British government was the result of indecision about whether to keep shops and businesses open to protect the economy and millions of jobs or to shutdown economic and social activity as an attempt to curb the spread of the virus. The coronavirus pandemic is already responsible for the worst UK recession since the Great Frost in 1709.