Pound Sterling falls against US dollar and euro

Pound Sterling (GBP) has slipped in currency markets this week, falling to six-week lows against the euro (EUR) and two-month lows against the US dollar (USD).

During the start of the year, the British pound (GBP) was buoyed by the UK’s rapid vaccination programme, trailing ahead of many of its peers. However, with UK vaccine progressions now looking to be threatened by supply delays from India and blocked vaccine exports from the EU, Sterling is increasingly coming under pressure in foreign exchange markets (FX).

New tensions between the UK and EU are mounting concerns over a breakdown in relations and caused the British pound to US dollar (GBP/USD) exchange to dwindle to USD 1.38. At the same time, the British pound to euro (GBP/EUR) exchange rate has fell to EUR 1.17.

Whilst currency markets reacted positively to the Brexit trade deal news last December, the recent friction between the UK and the EU are causing concern over the future of the agreement. As the EU has not ratified the trade deal, there is a chance that they could walk away from the terms, meaning a no-deal Brexit is still technically possible.

Investors are concerned over the reaction in foreign exchange (FX) markets, considering the lack of clarity on the status of the ratification of the trade deal, which was set to take place in April and since been postponed.

During last year, issues such as state aid, governance and fisheries continued to be a major sticking point in talks between the UK and the EU. As a result, the prospect of a no-deal Brexit remained appreciable for investors.

Chief Negotiator David Frost and his EU counterpart, Michel Barnier identified that significant gaps remained on these crucial issues; however, both declared their commitment to a deal being reached.

Given the current state of relations between the UK and EU, GBP/EUR and GBP/USD could continue to suffer in the near term.

GBP/AUD continues to struggle

EU vaccine-related headlines have pushed the British pound to Australian dollar (GBP/AUD) exchange rate to AUD 1.81 during today’s session as the British pound (GBP) awaits the outcome of today’s virtual EU summit.

The British pound (GBP) has been volatile against the Australian dollar (AUD) over recent weeks, as it has with many of its other major currency peers due to the uncertainty of coronavirus vaccine supplies.

Throughout 2020, the British pound to Australian dollar (GBP/AUD) exchange rate continued to be rocked by Brexit headlines, with analysts warning of steep losses in the currency pairing if Boris Johnson walked away from trade talks.

The Australian dollar (AUD) also continues to be sensitive to China banning coal imports from Australia, as tensions between the two countries remain. With iron ore production in Brazil recovering, iron ore prices are expected to continue easing which could further dampen bullish sentiment in the “Aussie” dollar.

However, we expect vaccination and post-Brexit concerns will have the most significant influence on the British pound to Australian dollar (GBP/AUD) exchange rate in the near-term.

Despite the broad-based optimism towards the UK economy in the long term, current pressures will weigh on the British pound over the coming weeks.

Although there have been hints that the EU could walk away from the Brexit trade deal, the bloc’s slow vaccination campaign is currently the order of the day.

Michael Hewson, chief market analyst at CMC Markets UK said “tensions between the EU and UK still remain fairly elevated, despite efforts to cool the narrative, while the recent comments from Thierry Breton, the EU’s internal market commissioner, accusing the UK of vaccine nationalism still suggest the potential for a misstep.”

GBP/JPY rebound after positive preliminary UK PMI data

Selling pressure around the British pound (GBP) was elevated during early trade on Thursday, primarily due to an onslaught of negative EU vaccination headlines.

Pound Sterling (GBP) fell under pressure against a host of major currencies, including the US dollar (USD), euro (EUR) and Japanese yen (JPY). However, the GBP/JPY currency pair has managed to reverse the European session slide and is currently trading near daily highs.

After a depressing start during the first half of the trading session, the British pound to Japanese yen (GBP/JPY) exchange rate is trading 0.77% higher in the New York session at JPY 151.22.

GBP gained traction following reports of positive preliminary purchasing managers index (PMI) data for March, particularly in the manufacturing sector. Despite UK struggles, there is still significant optimism for the future of the UK economy, particularly with non-essential businesses set to reopen next month.

The news eased selling pressure around the British pound (GBP) and prompted the bullish movement in the GBP/JPY exchange rate.

Although the Japanese yen (JPY) is outperforming its safe-haven counterparts, subdued action around the currency has limited any upward momentum against riskier assets.