The pound is still the top performing major currency of 2021 however the gap is now much smaller than that a of a few weeks back, where GBP/USD interbank exchange rates were up over 1.42 and GBP/EUR interbank exchange rates were up comfortably in the 1.17s.
It is no secret that the vaccination program within the Eurozone has not been one of the better performing throughout the world, and this has been weighing on the euro in recent times. One solution from certain members which has been quite widely covered in the press is to limit or restrict the export of vaccines to the UK and other areas of the world, a move which is now starting to bring uncertainty back to the pound.
Should the vaccination program hit bumps in the road like this, the pace of the roadmap laid out previously by Boris Johnson may slow and the economy may not open up as rapidly as the markets believe it may do, having an impact on UK economic performance as a whole in the coming months.
Should the vaccination program hit bumps in the road like this, the pace of the roadmap laid out previously by PM Boris Johnson may slow and the economy may not open up as rapidly as the markets believe it may do, having an impact on UK economic performance as a whole in the coming months.
Uncertainty can be very negative for a currency, and the issues above bring both economic uncertainty and political issues too, so until the vaccine wars are resolved we could expect to see the pound continue to struggle to make any reasonable gains against most major currencies.
Expectations are that at tomorrow’s European council meeting further decisions could be made regarding the blocking of vaccine exports, so be sure to watch for the outcome as it is likely to impact the value of the pound.
This morning we have the release of inflation data along with market and services PMI, none of the three are expected to make any huge waves but in cases of any surprises it is still key to have an eye on sterling exchange rates around 09:30am.
We have had a mixed week for euro exchange rates, seeing slight gains against the pound yet losing ground against the dollar.
It is no secret that the Eurozone’s vaccine rollout has been less than desirable and it appears that they are looking to take action to try and get back on the front foot, however the action they are looking to possibly take may have wider implications to other nations around the worlds along with political problems to follow.
With the European Commission alongside France and Germany expressing their desire to block exports of the vaccine to the UK and other countries around the world we have seen this benefit the euro against the pound but the main benefactor overall has been the dollar, with a flight to safety and investors seeking to avoid risk.
Tomorrow we have the European council meeting and the results of this meeting may be key for euro performance over the course of the rest of the trading week.
In terms of economic performance within the Eurozone, the Bank of Spain yesterday announced that due to ongoing issues with the virus they expect economic growth this year to potentially be as low as 3%.
Bearing in mind that the Spanish economy contracted more than any other within the EU last year, by 11% this suggests that there is still a large gap to fill regarding Spanish economic performance this year which could impact euro exchange rates negatively in the months ahead.
One of the larger winners of the week so far is the dollar, with substantial gains seen against both the pound and the euro. GBP/USD rates have dropped to their lowest level since early February, and much of this appears to be down to investors and speculators attitude to risk slowly moving towards the more cautious side again.
Antipodean currencies (AUD,NZD) were the weaker performing currencies of the trading day and the dollar the strongest performing currency which usually suggest that global attitude to risk has taken a slight shift.
Despite all the issues currently across the US the dollar is still seen as a safe haven currency and on top of this the issues between the EU and the UK regarding vaccines does appear to be falling into the hands of the dollar.
As an example, Credit Agricole’s FX Strategist David Forrester has suggested that further potential of vaccine disruptions may warrant a more cautious outlook on GBP, in particular against USD in the coming weeks.
For USD/EUR Barclays have suggested that they feel a drop down to interbank levels of 1.14 EUR/USD by year end, which is more than a 4% from the current levels sat around the 1.19 mark at the time of writing this report.
Considering towards the end of February EUR/USD had been up at the top end of the 1.22's we have already seen a move lower but it does appear that there are concerns over the lack of progress with the vaccination program within the Eurozone and the economic impact that may have going forwards.
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