Pound Sterling boosted by upbeat UK retail sales data

• UK Retail Sales data offers pound Sterling (GBP) exchange rates a boost
• British pound to US dollar (GBP/USD) cross reclaims losses
• Euro (EUR) fundamentals remain skewed to the downside
• British pound to New Zealand dollar (GBP/NZD) exchange rate flat

Pound Sterling (GBP) has caught a bid against safe-haven currencies and other major rivals ahead of the weekend despite concerns over Coronavirus vaccine supply issues in the UK and the likelihood of Europe’s third COVID wave “washing up on British shores.”

The British pound (GBP) has advanced against the euro (EUR), Japanese yen (JPY) and the resurgent US dollar (USD) on Friday.

At the time of writing, the British pound to euro (GBP/EUR) exchange rate is trading 0.2% higher at EUR 1.1693, and foreign exchange (FX) analysts have forecast further gains in the currency pair.

GBP/EUR made a notable advance on Thursday after the UK, and the EU made a joint statement on vaccine co-operation, edging 0.75% higher to a daily best of EUR 1.16806.

After starting the week on the back foot, Thursday and Friday’s gains mark a change in pound Sterling’s (GBP) fortunes. With the EU’s economic recovery outlook darkening, the broader 2021 trend of appreciation could reassert.

Several developments support the UK currency’s outlook, the first being UK Prime Minister Boris Johnson’s cautious lockdown exit roadmap, with the first phase of easing measures well underway.

On March 29th, “stay-at-home” rules will be lifted in England, and Britons will be allowed to meet outside under the “rule of six” or as two households.

While concerns have been raised about a possible vaccine shortage due to delivery issues from an AstraZeneca plant in India, with more than 50% of the adult population protected against COVID-19, the UK’s plans to reopen should be able to go ahead without delay.

The British pound vs euro (GBP/EUR) exchange rate is also being supported by Friday’s UK Retail Sales publication, which fell in line with forecasts and showed Britain’s economic resilience.

According to official figures published by the Office for National Statistics (ONS), UK retail sales jumped by 2.1% in February, with demand for garden furniture and household goods leading the recovery.

Furthermore, the EU has rowed back on threats to block vaccine exports to the UK and derail its vaccination campaign.

While AstraZeneca is expected to stay in the headlines after the EU told the pharmaceutical firm that they must catch up on deliveries and honour its contractual commitments, tensions with Britain over the Anglo-Swedish manufactured jab are fading.

Several FX analysts had attributed the recent weakness in pound Sterling (GBP) exchange rates to uncertainty over vaccine exports.

As FX markets are forward-thinking by nature and vaccination programmes are considered key to reopening an economy, threats to delay Britain’s vaccine rollout weighed on GBP.

With both sides vowing to create “a win-win situation and expand vaccines supply for all our citizens”, investors are less bearish on GBP/EUR.

Moreover, as Britain has vaccinated more than 28 million of its population and UK Prime Minister Boris Johnson’s reopening timetable remains achievable, pound Sterling (GBP) should continue to gain against the euro (EUR) and other trading rivals.

Barclays analysts Mareck Raczko said: “We expect sterling to remain strong, marginally outperforming USD and appreciating against EUR over the forecast horizon.”

However, improved GBP fundamentals could have a limited impact on the British pound to US dollar (GBP/USD) exchange rate, is trading at the lower end of its March range today amid growing concerns over the global economy.

GBP/USD edges higher but remains down from March highs

While the British pound vs dollar (GBP/USD) currency pair is trading 0.2% higher at USD 1.3774, Cable is trading near the lower end of its March range.

Upside in GBP/USD appears to have been triggered by an improvement in risk appetite, which partially courtesy of the United States accelerating vaccine rollout, which has boosted the global recovery outlook.

Recent economic data showing that the US labour market is recovering is also contributing to optimism. According to Labor Department data, US unemployment relief claims fell to the lowest level in a year and dipped below 700,000 for the first time since the onset of the pandemic.

However, improved risk sentiment could be temporary amid signs that coronavirus cases are surging across the US.

While President Joe Biden announced that he’d raised the US vaccine target from 100 million to 200 million during his first White House press conference on Thursday, the statement has done little to reassure financial markets.

With only 26% of the US population protected against COVID-19, rising coronavirus cases poses a threat to the vaccination progress.

FX analysts at the Bank of America FX have also said that they expect the US dollar’s (USD) recent appreciation to continue in 2021.

Credit Agricole FX analysts forecast similar fortunes for GBP/USD in 2021. However, they predict the British pound to dollar (GBP/USD) cross advancing to USD 1.43 by June 2022 and USD 1.45 heading into 2023 – gains of 4.2% and 5.7%, respectively.

While the greenback has defied consensus expectations thus far, as most FX market participants had expected 2021 to be a year of declines for the American currency, riskier assets are edging higher ahead of the weekend.

New Zealand dollar stages a recovery

The New Zealand dollar (NZD) had reclaimed some of this week’s losses after the NZ government sent the “Kiwi” currency tumbling when they announced new measures to cool New Zealand’s booming housing market.

Against the US dollar (USD), the New Zealand dollar (NZD) is trading 0.4% higher at USD 0.698, albeit gains could be tentative.

Meanwhile, the British pound to New Zealand dollar (GBP/NZD) exchange rate is 0.1% lower at NZD 1.9704.

However, GBP/NZD is trading well above this week’s low of NZD 1.9255 and given that FX analysts forecast further short-term weakness in NZD exchange rates, the currency pair could maintain its gentle upward bias.

Furthermore, investors have been hit with data showing that the New Zealand economy contracted by 1% during Q4 2020.

Nonetheless, with new measures restricting housing market growth and international tourism locked for the foreseeable future, investors fear that this will lead the Reserve Bank of New Zealand (RBNZ) to stay dovish for longer – a move that would weigh on NZD.

Although New Zealand has all but eliminated the virus’s local transmission, and the NZ government has reduced fiscal support now that most of the economy has reopened, renewed uncertainty over its recovery outlook could trigger headwinds for NZD.

Meanwhile, the Bank of England (BoE) said it would continue to provide financial aid as the UK’s economic outlook remains “unusually uncertain.” The central bank has also shown no concern over the strengthening pound Sterling (GBP), so it will more than likely allow the currency to continue advancing.