Pound Sterling advances amid UK COVID-19 vaccine optimism

• British pound to euro (GBP/EUR) exchange rate storms higher amid covid vaccine optimism
• Australian dollar (AUD) loses its appeal after Reserve Bank of Australia (RBA) surprise
• GBP supported by upwards revision of UK Manufacturing PMI data
• British pound to US dollar (GBP/USD) exchange rate tumbles following disappointing Chinese Manufacturing PMI data

The UK’s COVID-19 rapid vaccination programme continues to drive upside in pound Sterling (GBP) exchange rates on Tuesday.

Ned Rumpeltin, European Head of FX Strategy at TD Securities, notes that the difference between the pace of vaccine rollouts between Britain and the European Union is charging GBP outperformance.

According to the latest government statistics, nearly 10 million people in the UK have received a vaccine, equivalent to 13% of the adult population, compared to the EU, which has inoculated 2% of residents.

Vaccine optimism is guiding the British pound (GBP) higher against the majority of its G10 currency rivals, including the euro (EUR), Australian dollar (AUD) and Swiss franc (CHF).

While the British pound to US dollar (GBP/USD) exchange rate continues to trade with an upside bias, the currency pair has struggled following disappointing Chinese Manufacturing PMI data which triggered some risk-averse trade.

However, TD Securities forecasts further upside in pound Sterling (GBP) in the near-term as foreign exchange (FX) markets become increasingly concerned with vaccine rollouts, which are believed to be the way out of the pandemic.

UK COVID-19 vaccination programme fuelling upside in GBP

The UK is a frontrunner in the race to immunisation, and now that the EU has been forced to backtrack on its threat to block vaccine exports into Britain, this could be a new trigger for bullish GBP traders.

Last week, EU Commission President Ursula von der Leyen said EU vaccine exports to the UK and other countries including Canada, Japan, the United States and New Zealand would need to be approved by authorities before leaving the bloc’s borders.

The move followed a bitter vaccine row between the EU and AstraZeneca after the pharmaceutical company said it could not deliver the agreed 100 million doses by March due to production issues at the Belgian plant.

However, the EU was forced to back down after triggering Article 16 of the Northern Ireland protocol, which effectively breached parts of the Brexit trade agreement by creating a hard border on Ireland.

While the move may have invoked some political tension between the UK and the EU, British ministers are now confident that the UK’s COVID-19 vaccination programme will maintain its accelerated pace as there will be no disruption to delivery schedules.

With the EU and the UK’s situation resolved, the British pound to euro (GBP/EUR) exchange rate has rallied to new seven-month highs on Tuesday.

At the time of writing, GBP/EUR is trading 0.3% higher at EUR 1.1365 and could continue to climb amid ongoing vaccine optimism.

Pound to Australian dollar extends gains after RBA decision

The British pound to Australian dollar (GBP/AUD) exchange rate has rallied to a one-month best due to a combination of vaccine optimism and a surprise from the Reserve Bank of Australia (RBA).

While the RBA kept its interest rates unchanged at 0.1%, the central bank expanded its quantitative easing programme and said that rates would remain at historic lows for at least three years.

The developments triggered bullish upside in the British pound to Australian dollar (GBP/AUD) exchange rate, which is trading 0.4% higher at AUD 1.7999 at the time of writing.

The developments at the RBA has allowed GBP/AUD to maintain a multi-day appreciation trend and could open the door to a potential test of the psychologically significant AUD 1.80 level, especially with interest rates set to remain at 0.1% for years as this reduces the “Aussie” dollar’s appeal.

UK Manufacturing PMI figures released on Monday is also offering GBP/AUD a boost in currency markets. According to IHS Markit/CIPS, UK manufacturing sector activity was revised higher to 54.1 in January, beating preliminary estimates and a readout for 52.9.

While the figure demonstrated how the third national lockdown and Brexit aftermath has increased pressure on supply chains and reduced inflows of new export work, the data was mostly supportive of the UK currency.

The British pound to Swiss franc (GBP/CHF) exchange rate has rallied to CHF 1.228, while the British pound to Swedish krona (GBP/SEK) exchange rate hit a January best of SEK 11.544.

However, the British pound (GBP) is struggling against the US dollar (USD) and the riskier Canadian dollar (CAD). The “Loonie” is outperforming courtesy of the ongoing rally in oil markets, while lower-than-expected Chinese Manufacturing PMI data has boosted demand for the greenback.

GBP/USD under pressure after Chinese Manufacturing PMI disappoints

The British pound to US dollar (GBP/USD) exchange rate has struggled to develop bullish momentum this week, mostly due to weaker-than-expected Chinese manufacturing PMI.

While China has successfully suppressed the Coronavirus, its economic rebound appears to be losing momentum, which, as a result, is increasing demand for the safe-haven greenback.

According to Caixin, Chinas Manufacturing PMI slipped from 53.0 in December to 51.3 in January as supply and demand growth stalled amid the ongoing pandemic.

The disappointing data triggered significant upside in US dollar (USD) exchange rates across the board, which saw the British pound to US dollar (GBP/USD) exchange retreat to the USD 1.36 level.

At the time of writing, GBP/USD is trading flat at USD 1.3671; however, pound Sterling (GBP) could reverse its fortunes following the Bank of England (BoE) monetary policy statement scheduled February 4th.

While investors may have already priced out the possibility of the BoE implementing negative rates, policymakers’ comments could trigger some sharp moves in GBP.

If the central bank holds a more optimistic view of the UK’s economic outlook, GBP/USD could make a swift recovery in FX markets, albeit any dovish comments could leave Cable biased to the downside.