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Pound Sterling trades on a softer note amid vaccine concerns

  • Pound Sterling (GBP) pressured by vaccine rollout concerns
  • Euro (EUR) gains as German Factory Orders increase in February
  • British pound to US dollar (GBP/USD) exchange rate forecast to recover
  • The risk-sensitive Australian dollar (AUD), Canadian dollar (CAD) and South African rand (ZAR) supported by improving sentiment

Pound Sterling (GBP) has erased some of its 2021 gains in April – a month which historically sees the currency appreciate due to some profit-taking and the recent mixed vaccine news.

The British pound has fallen lower against a host of rivals this week, including the US dollar (USD), euro (EUR) and emerging market South African rand (ZAR), despite signs that the UK economy is on track for a solid recovery.

While the British pound to US dollar (GBP/USD) exchange rate is trading slightly higher heading into the North American session at USD 1.3751, the currency pair remains off 2021 highs.

Meanwhile, the British pound to euro (GBP/EUR) exchange rate is trading 0.2% lower on Thursday at EUR 1.1542 – after spending a large majority of the past month above the EUR 1.17 level.

Market analysts have attributed the weakness in pound Sterling (GBP) exchange rates to the vaccine rollout concerns, which have been triggered by a shipment delay from an AstraZeneca plant in India and confirmation of a possible link between blood clots and the Oxford vaccine.

Britain could achieve herd immunity against COVID-19

Vaccine rollout concerns weighing on GBP

Despite confirmation that the next phase of easing in UK Prime Minister Boris Johnson’s exit roadmap has been given the green light, investors fear that a slowdown in the UK’s vaccine rollout could delay the government’s plans to reopen the economy.

Official government data has already revealed that the pace of vaccination has slowed significantly this month, which appears to be influencing pound Sterling (GBP) direction in foreign exchange (FX) markets.

The UK’s medical regulator, Medicines and Healthcare products Regulatory Agency (MHRA), also published new advice concluding a possible link between blood clots and the Oxford-AstraZeneca vaccine, which has spooked investors.

The MHRA advised the UK government to offer under-30s the option to choose which vaccine they want to receive after research revealed that this demographic is at higher risk of developing the rare side effect.

The British pound to euro (GBP/EUR) exchange rate retreated to EUR 1.1542 in the wake of the news, while the British pound to dollar (GBP/USD) currency pair slumped to USD 1.3725.

Despite April losses, the UK currency is up by 3.21% against the euro (EUR) in the year to April 8th and 0.53% higher against the US dollar (USD).

Adding to that, improving risk appetite should open up the floor to further upside in GBP/EUR and GBP/USD in the near term.

The single currency also has to navigate Europe’s deteriorating COVID-19 situation, which is dampening hopes of a swift economic rebound for the Eurozone.

Euro gains but outlook remains skewed to the downside

The euro (EUR) has been surprisingly resilient given that the EU continues to struggle with its vaccine rollout, and surging coronavirus cases and reimposed lockdown restrictions across Europe are darkening the bloc’s recovery outlook.

Today, the single currency managed to advance against pound Sterling (GBP) following the publication of better-than-expected German Factory Orders, which jumped up by 1.2% in February.

As Germany is the EU’s largest economy, the news appears to have restored some confidence in Eurozone’s economic prospects.

However, given that a vast majority of the bloc is under strict lockdown restrictions and the uptick in COVID-19 cases is threatening to overwhelm European hospitals, any significant upside in EUR/GBP will be unlikely.

Pound Sterling’s (GBP) fortunes could also change over the coming week, with non-essential stores, gyms, hair salons and restaurants with outdoor seating areas set to reopen from April 12th.

Furthermore, modelling from University College London (UCL) revealed that the UK would achieve herd immunity next week, which could increase recovery prospects by reducing the risk of another wave of the virus running rampant across the country.

According to UCL, 73.4% of the population will have developed COVID antibodies by April 12th, gained through vaccines or previous infection.

England’s Deputy Chief Medical Officer Professor Jonathan Van-Tam has also dismissed concerns over delays to the UK’s vaccine programme, stating that disruption expected this month would have a “negligible impact on the timing of the overall campaign.”

It comes as the UK government confirms that it has secured 17 million doses of the Moderna vaccine and will begin nationwide deployment of the jab from mid-April.

UK Health Secretary Matt Hancock also told reporters that Britain is lined up to receive a further three vaccinesNovavax, Jansen and Valneva, which, if approved, could be rolled out later this year.

The Moderna vaccine rollout could certainly alleviate concerns over delays to Britain’s vaccination campaign and offer GBP/EUR a significant boost in currency markets.

However, given that other countries are ramping up coronavirus vaccinations, this could dampen the British pound’s (GBP) comparative advantage.

Greenback USD

Improving risk-sentiment weighing on GBP/AUD, GBP/CAD and GBP/ZAR

Despite the rosier outlook for the UK economy, which is on track to stage a solid rebound in the second half of 2021, as other countries are accelerating their vaccine rollout, this limits bullish potential in GBP exchange rates.

A weaker greenback and optimism over global economic recovery is also supporting riskier assets such as the South African rand (ZAR), Australian dollar (AUD) and Canadian dollar (CAD) in FX markets.

Despite the possibility of a delay to Australia’s vaccine rollout following confirmation that the EU has blocked a batch of vaccine exports to the country, the British pound to Australian dollar (GBP/AUD) exchange rate is experiencing some selling pressure.

GBP/AUD is currently trading 0.3% lower, heading into New York trading hours at AUD 1.7984 despite stronger-than-expected UK Construction PMI data, which surged to a six-year high of 61.7 in March versus expectations of 54.6.

Lasting strength in the Canadian dollar (CAD) is also making it harder for pound Sterling (GBP) to record any notable advances against the “Loonie” on Thursday.

At the time of writing, the British pound to Canadian dollar (GBP/CAD) currency pair has slumped by 0.2% to CAD 1.7289 – slightly above April lows.

While the Canadian dollar’s (CAD) appeal has been dented by commodity weakness and concerns over the likelihood of a third COVID wave in devastating Canada, Friday’s labour market report could alleviate fears and send CAD/GBP higher ahead of the weekend.

However, greenback weakness could ensure that an ongoing downside bias in the British pound to South African rand (GBP/ZAR) exchange rate remains intact for the coming weeks.

GBP/ZAR has plunged by more than 0.3% on Thursday and is trading at ZAR 19.9485, bolstered by improved market sentiment and this week’s profit-taking, which has benefited other “funding” currencies this week, including the euro (EUR).

Some analysts have described the South African rand’s (ZAR) performance as peculiar given weak domestic fundamentals, but ZAR traders appear to be looking past the COVID-19 pandemic.

While the possibility of further disruption to vaccine supplies remains a downside risk to ZAR/GBP, investors have become increasingly optimistic about ZAR after the South African Reserve Bank (SARB) upgraded its growth and inflation outlook.

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