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Pound Sterling: GBP/NZD, GBP/CAD, GBP/USD, GBP/JPY, GBP/AUD

  • Pound Sterling (GBP) trading lower against the US dollar (USD) and the euro (EUR)
  • Slow vaccine rollout in Australia weighing on the Australian dollar (AUD)
  • British pound (GBP) vulnerable ahead of UK-EU talks on Northern Ireland protocol
  • Traders concerned about UK reopening plans being delayed

Pound Sterling (GBP) retreated in currency markets after the latest government data revealed that the infection rate in Britain is surging.

According to recent data, caseloads in Britain are doubling approximately every ten days, with 5,683 coronavirus cases recorded in the UK over the past 24 hours.

However, figures show that deaths and hospitalisations remain low, with one COVID-related fatality reported on Monday. Meanwhile, 154 people were admitted into the hospital – significantly lower than levels seen during the previous wave.

The UK’s vaccine rollout, which has now been extended to over-25s, has helped limit any significant losses in the value of the British pound (GBP), which is trading lower across the board on Tuesday.

Some market analysts are also attributing GBP weakness to nerves over whether the last phase of UK Prime Minister Boris Johnson’s coronavirus lockdown roadmap will be delayed.

Although the British government said it is still “too early” to say whether the June 21st reopening will be delayed, comments from UK Health Secretary Matt Hancock appear to have rattled foreign exchange (FX) markets.

On Sunday, Mr Hancock said that the UK government was “absolutely open” to pushing back the reopening timeframe.

Investors fear the June 21st reopening will be delayed

Investors rattled by the possible delayed reopening of UK economy

According to The Times, the move to completely reopen the economy could be delayed until July, with cabinet ministers reportedly increasingly concerned about the COVID situation in the country following a briefing from Britain’s chief scientific advisors.

Ministers believe that the delay will provide the health service with enough time to ensure that all over-50s are fully inoculated and allow the COVID jabs to take effect before coronavirus lockdown measures end.

While some analysts have said that delaying the final unlocking of the UK economy would have little impact on GBP exchange rates, Western Union Business Solutions Currency Strategist George Vessey begs to differ.

Mr Vessey said: “If the final unlocking of the UK economy is delayed, this would be GBP-negative. Sterling is already slipping against currency peers as a result.”

At the time of writing, the British pound to US dollar (GBP/USD) exchange rate is trading 0.2% lower at USD 1.4136, while the British pound to euro (GBP/EUR) exchange rate has slumped by 0.1% to EUR 1.1611.

Although robust economic data out of the UK has offered GBP some much-needed respite, the UK currency remains vulnerable ahead of tomorrow’s round of UK-EU talks about Northern Ireland protocol.

Pound Sterling (GBP) has also come under pressure against the Canadian dollar (CAD) and the New Zealand dollar (NZD) on Tuesday, with the “Kiwi” currency, tipped to remain the favourite for FX market participants over the coming week.

Signs of resurgent demand for the Kiwi is already being reflected in the British pound to New Zealand dollar (GBP/NZD) exchange rate, which has retreated from highs of NZD 1.978 over the past week.

As of 17:00 GMT, GBP/NZD is trading flat at NZD 1.9627. However, further declines could be in store, with traders anticipating interest rate hike talks from the Reserve Bank of New Zealand (RBNZ).

The British pound to Australian dollar (GBP/AUD) exchange rate also trades lower at AUD 1.8265, heading into the North American session.

However, the slow coronavirus vaccine rollout in Australia has limited upside potential in the “Aussie” dollar, new analysis has shown.

According to research from Crédit Agricole, the Australian dollar (AUD) is underperforming as the slow COVID vaccine rollout leaves the country susceptible to emergent strains and further stop-start restrictions.

The financial institution also noted that last week’s Reserve Bank of Australia (RBA) policy decision had dampened the appeal of the Australian dollar (AUD), with policymakers signalling lower interest rates for the near future.

Still, any upside surprise from pound Sterling (GBP) is unlikely this week due to the quiet economic calendar.

While Britain’s COVID-19 vaccine rollout is fuelling hopes of a strong rebound, our readers monitoring GBP should expect the currency to continue taking direction from ongoing coronavirus developments and lockdown concerns this week.

Rapidly spreading Indian variant dampening GBP prospects

Incoming figures on the infection rate are also unsupportive of the reopening narrative, with caseloads up by 2,300 week-on-week.

According to Professor Oliver Johnson from Bristol University, Britain’s “R” value, which estimates the growth rate of the virus, has climbed to 1.47.

On Monday, the UK Professor tweeted: “This aspect of the situation (the infection rate) is not necessarily developing to our advantage.” However, last week UK PM Boris Johnson said that there is nothing in the data that suggests the June 21st reopening needs to be delayed.

Most analysts expect pound Sterling (GBP) to benefit from a robust economic rebound in Q2, fuelled by increases in consumer spending.

Although fears over a more transmissible variant and the possible renewal of coronavirus lockdown measures could hinder this rebound, it seems that the positive outlook is largely intact.

While GBP has come under pressure in currency markets, London’s blue-chip FTSE 100 Index has edged higher.

FTSE 100 Index closes in positive territory

London’s FTSE 100 Index extended Monday’s gains and closed in the green on Tuesday, as summer slowdown worries failed to dent hospitality, banking and housebuilder stocks.

The blue-chip FTSE 100 closed 30 points higher or by 0.42% at 7,107.29, with shares in financial groups such as Barclays PLC and Lloyds Banking Group providing support.

Among the top earners was the British American Tobacco (BAT) company, which boosted the FTSE 100 by 0.6% after their shares rose by 2.9%.

However, with the UK government yet to confirm whether the final stage of the reopening can go ahead and the infection rate surging, this could weigh on sentiment.

Separate data has also revealed that consumer spending appeared to have stalled throughout the second half of May. Further signs of deterioration could dampen demand for pound Sterling (GBP), warn several analysts.

Currently, GBP is treading water against its major trading partners, primarily due to the lower number of coronavirus-induced deaths and hospitalisations, which are crucial factors for the UK roadmap and, in turn, pound Sterling (GBP).

However, with many positives already priced into the currency, analysts from Crédit Agricole “believe that GBP will be vulnerable to any data disappointments, dovish BoE surprises and/or signs that the infection rate could threaten the government’s plans to reopen the economy.”

Suppose the number of hospital patients suffering from COVID-19 had risen in tandem with the infection rate; ministers may have already announced a delay to the final phase of the COVID lockdown roadmap.

During a Commons speech, UK Health Secretary Matt Hancock said that “COVID jabs are severing the link between caseloads, hospitalisations and deaths”, and as a result, the NHS had not been subjected to any overwhelming pressure.

Mr Hancock also told the Commons that of all the people that had become infected with the B.1.617 Indian variant, 73% were unvaccinated.

Following the announcement, he said that Britain would extend the coronavirus vaccination campaign to include 25-to-29-year-olds “to bring us ever closer to the goal of offering a COVID shot to all UK adults by July-end.”

As it stands, 68,381,870 coronavirus vaccine doses have been administered in the UK, of which 40,460,576 people have received one COVID jab, and 27,921,294 adults are completely vaccinated.

So, while there is some uncertainty surrounding the timeframe of the final unlocking of the UK economy, given that most of the adult population is showing COVID-19 antibodies, it’s unlikely that ministers will impose any further coronavirus restrictions.

The chief UK and senior economist at Barclays Europe, Fabrice Montagne, also notes that “the economic damage that is likely to occur from a delay to the June 21st reopening will be minimal given that the majority of economic activities remain unlocked.”

Other analysts have suggested that as the delay is unlikely to impact the economic narrative drastically, any weakness in pound Sterling (GBP) exchange rates will likely be short-lived.

Jordan Rochester, an FX strategist at Nomura, stated: “If it is delayed, we would expect a GBP sell-off, but for it to be brief in length and provide an opportunity to add to longs.”

Mr Rochester went on to say that there are other drivers supporting pound Sterling (GBP) exchange rates, including the overall economic performance of the UK, the accelerating vaccine rollout and rising UK real yields versus peers.

The Japanese-owned financial holdings company sees GBP/USD rising to USD 1.51 by 2021-end and GBP/EUR hitting a high of EUR 1.20 before the end of the year.

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