EU vaccination campaign gains momentum

Despite rising coronavirus cases, the outlook for the Eurozone economy is growing more optimistic as the EU ramps up its vaccination campaign, aiming to catch up with the efforts of the UK and US.

After a slow start, the Eurozone has stepped up its vaccination campaign, suggesting that the euro (EUR) is on course to make a comeback against its currency rivals in the near future.

France has ramped up its efforts, administering 510,000 vaccines last Friday alone. Germany is also back on track with vaccine deployment, with 12.7 million now having received their first dose of a coronavirus vaccine.

Despite a difficult start to the year, purchasing managers index (PMI) data across the Eurozone also significantly improved during March, with manufacturing PMI jumping to 62.50 from 57.9 the previous month.

Eurozone progressions had wavered over the past year as a result of record drops in output during  March and April 2020, which saw manufacturing PMI fall to an all-time low of 33.40 in April 2020 as a result of national lockdowns across the bloc.

Q1 has seen a mixture of positive and disappointing data across the EU, which has dampened euro (EUR) sentiment. According to the European Union statistics agency, Eurostat, durable consumer goods output increased by 2.4% in February year on year while energy output decreased by 1.5% in February year on year. On a slightly more positive note, production of intermediate goods increased by 0.5%.

However, the Eurozone’s improved vaccination efforts are helping the euro (EUR) to recover losses against its currency competitors. Yvan Mamalet, an economist with Société Générale said “assuming there is no new noticeable backlash against the vaccines and no further significant delivery problems, it looks plausible that high-risk people will be vaccinated by the end of April and 70% of adults will be vaccinated by the end of the summer.”

Whilst the euro (EUR) currently remains vulnerable, the British pound (GBP) has hit a seven-week low against the single currency. At the time of writing, the British pound (GBP) has steadied against the euro (EUR) to 1.162, which was further encouraged by news that Bank of England (BoE) Chief economist would step down. The news did not appear to affect the British pound to US dollar (GBP/USD) exchange rate which stands at USD 1.398.

EUR/USD exchange rate steady

The US dollar’s (USD) rebound against the euro (EUR) quickly ran out of steam as US President Joe Biden’s coronavirus stimulus deal lost traction and surprise US inflation data aggravated concerns about declining inflation-adjusted returns and increased demand for gold and silver.

Renewed US dollar (USD) weakness is helping to drive some meaningful impetus in the EUR/USD exchange rate, which appears to be holding steady, despite negative Eurozone data.

Although the euro (EUR) had been climbing higher against the greenback over the past several months, this has been primarily due to broad-based selling bias in the American currency and improved risk sentiment.

The single currency then found extra sustain from promising domestic fundamentals, which supported the bloc’s economic recovery outlook in the wake of the coronavirus slump. For the euro (EUR), this has namely been the European Recovery Fund, which investors saw as a positive step towards fiscal unity in the EU.

A stronger euro (EUR) is also resulting in a weaker pound (GBP), primarily as the EU looks to catch up with the UK with increasing momentum in the EU’s vaccination campaign.

However, according to the Office for National Statistics (ONS), UK GDP grew by 1% in the fourth quarter of 2020. While this beat market forecasts, it was still 7.8% below pre-pandemic levels. This period was mostly supported by restaurants allowing outdoor dining, and businesses allowed to remain open on the build up to Christmas.

However, the impact of the third wave of infections gripping the EU has dented hopes of a V-shaped recovery, has dampened both GBP and EUR sentiment over and continues to be a significant threat to the bloc.

Spain and France have seen particularly alarming spikes in daily cases, and French Prime Minister Jean Castex has already expressed concern over France’s handling of the coronavirus.

Europe’s COVID-19 situation is also denting hopes of a swift economic recovery in the euro to Australian dollar currency pairing.

At the time of writing, the euro to Australian dollar (EUR/AUD) exchange rate is trading at AUD 1.55 as concerns over the deadly resurgence of the virus across Europe could continue to impact the exchange rate.

France became the first European country to surpass 2 million COVID-19 cases, whilst Europe’s coronavirus death toll, has surpassed 1 million.

France’s decision to introduce a four-week lockdown has seen a recent decline in the number of new recorded cases. However, it is uncertain whether President Emmanuel Macron will extend the national lockdown past April.

Meanwhile, Australia will look ahead to the latest unemployment data. If the data shows that unemployment in the country has surged further, this will weigh heavily on the Australian dollar (AUD). The most recent data has indicated that unemployment within the country dropped to 5.7% in March. However, the EUR/AUD pairing could be left flat if a slew of Eurozone economic data release disappoints FX markets.