Vaccine Hopes Boost British Pound

The pound sterling continued to rise sharply against the euro and dollar for two months, reaching new highs this week as a sign of traders’ enthusiasm for the deployment of national vaccinations.

Just before Christmas, investors were afraid that Britain would leave the European Single Market without a post-EU trade deal.

At the same time, a deadly second wave and a new, more contagious variant of the coronavirus boosted infection rates, resulting in a surge in deaths.

Currently, it exceeds 120,000, which is one of the worst in the world.

However, since December, the pound has risen more than 5% against the euro and the US dollar, making it the top performer among major currencies.

This surge is due to the number of people vaccinated. According to the government, one in three adults has already been vaccinated for the first time, which is over 17.5 million.

Another reason for optimism is Prime Minister Boris Johnson, who released a “cautious but irreversible” roadmap on Monday to ease blockade restrictions by July.

“A year after the government’s reputation was damaged by a series of policy U-turns, the UK made the right decisions about vaccines,” Rabobank’s FX strategy officer Jane Foley told AFP.

“Vaccine deployment has improved the UK’s economic outlook compared to other regions, especially the EU,” Capital Economics added to the memo.

Since December, the pound has risen more than 5% against the euro and the US dollar.
AFP / Daniel Sora Buji

“The market is still adapting to the fact that the Bank of England is unlikely to implement negative rates so far,” said an analyst at the Swiss bank UBS.

Like other central banks, the Bank of England has adopted record low interest rates of only 0.1 percent to mitigate the economic impact of the pandemic.

However, traders were primarily concerned about adopting negative interest rates like the European Central Bank and the Bank of Japan.

At the last monetary policy meeting, banks took the option off the table until August, and Governor Andrew Bailey said it might not be implemented.

As a result, Forex traders have begun bidding on the pound against the dollar and euro.

The pound is still at a relatively low level, unlike the single European currency, where strength is focused on exports.

The UK currency is slightly above $ 1.40 at a high of nearly three years, but is 6% below the pre-Brexit referendum level in June 2016 and down 12% against the euro.

“The strong pound is another headwind for UK exporters and brings some relief to households,” said Paul Dale’s of Capital Economics.

“But that won’t make a big difference to the economy.”

Foley warned that “there is a speed bump first.”

She predicts that the effectiveness of the vaccine against coronavirus variants and the strength of the UK’s recovery will determine whether the pound will remain at current levels.

She added that another risk is imminent on May 6, when Scottish delegated parliamentary elections could give new impetus to the independence movement.