The EU vaccine export ban has threatened to halt the UK's remarkable advantage it has managed to establish on the international stage so far this year. Indeed, the pound did start by losing further ground during yesterday’s trading, slipping to an almost 6 week low, below the pivotal 1.16 mark against the euro before swiftly recovering once AstraZeneca cleared up question marks around it’s supply chain and removed the need for eurozone leaders to retaliate.

Sterling swiftly recovered to the mid 1.16s as the day went on, highlighting just how in tune sterling exchange rates remain with the success of the UK’s vaccination rollout. Eyes now turn to the spread of the virus in India, where a bulk of the UK’s orders are due to be produced. Should the nation struggle to keep the curve under control in weeks and months ahead, will the Indian government block exports in an attempt to accelerate their own vaccination program?

Looking locally, there is plenty to consider from an economic standpoint that could drive sterling’s value in the short term. Investors may have taken further confidence from the government’s decision to extend a £1.5 billion relief fund for businesses outside from hospitality, leisure and retail sectors. Chancellor Sunak’s attempts to support the UK economy have been well documented throughout the crisis however some criticism was raised by certain quarters over the blanketed approach to the government’s program which disproportionately supported some businesses and arguably alienated others. It will be interesting to see if this draws further appetite for UK PLC over time, thus supporting sterling’s efforts on the international stage. With this in mind, this morning’s retail sales figures are worth monitoring if you are in the market for foreign currency. Given a jump in figures is expected, might we see yesterday afternoon's impressive recovery matched once again?

Global trade

UK Exports Fall

One slight risk that still looms over the pound's prospects is the UK's trade capabilities as we progress through 2021. Since the turn of the year, UK exports had fallen by an eye-watering 40% after increased custom checks and added Brexit-related complications disrupted the flow of goods. This could well be further compounded by the recent news that hauliers must expect a covid test upon entry to the UK, potentially stretching out the delay even further. Industry leaders await clarification from the government as to whether or not certain exemptions will be brought in depending on which countries the drivers have passed through. Whilst uncertainty remains, could business confidence suffer in the long run?

Germany's Easter Celebrations to Go Ahead

The EU Covid chaos continued this week after German Chancellor Angela Merkel announced a day after Easter lockdowns were revealed, that a mistake was made and was solely her responsibility. On Tuesday this week the German Government introduced plans over Easter for a five-day lockdown however this caused outrage amongst religious leaders and retailers who have now convinced the Government into a remarkable U-turn. The infection rate in Germany has risen above 100 cases per 100,000 which is why the Government announced the Easter lockdown. The decision has left many surprised as the assumption is with infection rates rising a lockdown was likely to be the only solution to stop the spread however it is accepted many will attend ceremonies and family events throughout the break.

Merkel in her statement acknowledged that the “Kent” variant is spreading through Germany and it is more infectious lasting longer and more deadly. Yet despite making these comments, Merkel still removed the lockdown plans sighting the need for the country to be vaccinated as quickly as possible. It is not clear what data has been taken into account when committing to the controversial U-turn, but it should be assumed they followed the advice of scientists in the first place. Based on past experience of the last two lockdowns this Easter Weekend could cause another spike in German infections which in turn might lead to further EUR weakness as time goes on.

As a result, if you are in the market for euros in the immediate future, it may pay to follow this morning’s business confidence due for release from Germany. Whether or not the government’s show of flexibility will have filtered through quickly enough remains to be seen however with the rise in cases you could argue German business leaders may already have weakened their outlook.

Clearly, the market’s faith in eurozone leaders’ ability to pull together a coherent strategy has long been in question, and this week’s threats of a vaccination trade war may have done very little to support matters. Interestingly Jean Claude Juncker, former president of the European Commission, has criticized his successors for jumping to conclusions rather than pulling member blocks together to form a consistent plan. It will be interesting to see how the markets react to Von de Leyen's comments, standing by her position and calling for AstraZeneca to honor its commitments to the EU before prioritizing other nations further afield. Depending on how this story escalates, will we see yet further losses for the single currency in the long run?

US Dollar Strengthened by Weakening Global Outlook

US Dollar Pushes Past Multi-Week Highs

It could prove to be a particularly interesting end to the week for USD holders, after an impressive run this week saw the greenback push past multi-week highs against its major currency counterparts. An optimistic outlook for the US economy supported by an impressively accelerated vaccination rollout seems to have drawn the dollar back into favor, with the markets switch in form perhaps most apparent when looking at the EURUSD pairing, which with surprising consistency has dropped from the impressive 1.23 mark back down to the high 1.17s since the end of last year. 

It will be interesting to see how much further this trend can carry the pairing. For as long as there is no consistent plan for vaccinations across the block it is hard to see where the euro might be able to halt the current momentum behind the dollar. Equally, this also raises questions for those looking to buy dollars with pounds. With the flow of capital switching from European shores across to the States, will US dollars become increasingly expensive to buy? To date, sterling has largely been one of the exceptions to the change in fortune for the dollar, having consistently managed to hold its ground above the 1.37 mark. This could well be tested however with this afternoon's personal consumption data due out from the US, which has been tipped to reflect the positivity filtered down from last week's record breaking jobless claims release as well as President Biden's victory in hitting 100 million vaccinations almost a month and a half ahead of schedule.

Yesterday, we did have a reminder of other drivers for the US dollar outside of COVID-19 and its implications for the US economy. President Biden was drawn to comment on how he plans to lead US-China negotiations moving forward. It will be interesting to see what kind of response is given from Beijing after the US president compared Xi with Putin and indeed how this moves the market as a result. it is worth remembering the infamous trade war that stretched right across Trump's tenure which played a pivotal role in weakening global sentiment which ultimately supported the US dollar back to multi-year highs in 2019.

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