Pound Sterling subdued following vaccine delay concerns
The majority of 2021 has seen pound Sterling (GBP) rally against the US dollar (USD), euro (EUR) and an abundance of other major currencies, largely underpinned by the UK’s rapid response to coronavirus vaccinations.
Whilst the UK’s coronavirus vaccination programme is far ahead of most other countries, with over 27 million people now having received their first dose of a Coronavirus vaccine, it seems that progress is being threatened by multiple potential delays.
It was reported last week that the UK’s supply of the Oxford-AstraZeneca vaccine would come under pressure by delivery delays from India.UK Health Secretary, Matt Hancock, announced that there would be a delay in administering vaccines to the under-50s age group, with rollout expected a month later than anticipated in May.
Additionally, the EU has threatened to stop exports of the AstraZeneca vaccine to the UK, which could delay the UK’s vaccination progressions even further.
The British pound to euro (GBP/EUR) exchange rate has dipped to EUR 1.16 at the start of the new trading week as the Eurozone remains under threat due to a third wave of coronavirus cases. At the same time, the British pound to US dollar (GBP/USD) exchange rate has also fallen to USD 1.38 as US dollar (USD) sentiment continues to improve.
Oxford-AstraZeneca vaccine progressions so far
The British pound (GBP) strongly benefited the University of Oxford’s vaccine news, which was first revealed towards the end of last year.
According to AstraZeneca/Oxford University, the results of their phase three trials proved that their coronavirus vaccine was 70% effective against preventing the infection. However, this figure then rose to 90% when they altered their regimen, giving participants half a dose of the vaccine to begin with and a full dose one month later instead of two complete doses a month apart.
While the efficacy rate of AstraZeneca/Oxford’s vaccine is lower than Pfizer’s and Moderna’s, the vaccine is significantly cheaper. Furthermore, it does not require specialist equipment to transport the units, making it easier and faster to distribute to other countries. The Astra-Oxford coronavirus vaccine can also be stored long-term at average refrigerator temperatures, which is a promising prospect for developing countries, with Matt Hancock labelled it as “fantastic news”.
The announcement saw other countries pre-ordering a significant amount of units, with 400 million doses expected to be supplied to the EU, 3.8 million to Australia and 1 billion delivered to low and middle-income countries.
The vaccine news has sent a wave of optimism through global markets, and the positive mood amongst investors has aided gains in the British pound (GBP) against risk-on and risk-off currencies.
However, the British pound (GBP) faced pressure last week as a number of Eurozone countries suspended use of the Oxford-AstraZeneca vaccine, believing it encouraged blood clots. Though many health professionals have denied claims that the vaccine is harmful, the EU discussed last Thursday whether or not to ban the vaccine completely. The suspension cast a shadow over the EU’s vaccination campaign, which was already significantly behind the UK’s.
The EU has since stated that they will hold off on exporting doses of the AstraZeneca vaccine to the UK, claiming that the UK has not fulfilled vaccine obligations to the bloc. UK Prime Minister Boris Johnson is due to speak with EU leaders this week via a telephone conversation in an attempt to improve relations.
GBP slides against riskier assets despite the upbeat mood
Pound Sterling (GBP) has slipped against US dollar (USD) and the euro (EUR) but also the high-beta Australian dollar (AUD), Canadian dollar (CAD) and New Zealand dollar (NZD).
However, if risk sentiment continues to improve, riskier assets could edge higher in currency markets, and the New Zealand dollar (NZD) is forecast to be a considerable benefactor.
At the time of writing, the British pound to New Zealand dollar (GBP/NZD) exchange rate is trading 0.32% lower at NZD 1.929. That being said, the outlook for the New Zealand economy is relatively optimistic compared to other countries, including the UK, as coronavirus cases within New Zealand remain at a minimum.
The “Kiwi” currency has been among some of the best-performing currencies due to the low prevalence of COVID-19 in New Zealand and the country’s strong economic indicators.
While positive vaccine progressions will continue to boost the British pound’s (GBP) performance, the UK economy is expected to see a sharp recovery from April as non-essential businesses begin to reopen.
Pound Sterling remains exposed to downside risk
Whilst the Bank of England (BoE) were optimistic about the future of the UK economy in their March monetary policy meeting, the BoE also maintained a cautious tone, which prevented the British pound (GBP) from rallying against its main currency competitors.
Investors will continue to monitor post-Brexit trade developments this week, mostly in relation to Northern Ireland Protocol as tensions between the UK and the bloc are placed under further strain.
The British pound to euro (GBP/EUR) exchange rate is likely to be further impacted by the rise of coronavirus cases in the Eurozone and extended lockdown restrictions.