Pound Sterling a Buy, Euro a Sell on Vaccination Rollouts says Leading Investment Bank Strategist

- GBP can outperform EUR says French investment bank
- Vaccination rollout can boost GBP/EUR
- But GBP/EUR yet to break key resistance level

Above: 18/01/2021. Oxford, United Kingdom. Boris Johnson visits Oxford Biomedica. The Prime Minister Boris Johnson visit's Oxford Biomedica the manufacturing facility for the Oxford/Astrazeneca vaccine during Covid-19. Picture by Andrew Parsons / No 10 Downing Street.

• GBP/EUR spot at publication: 1.1219
• Bank transfer rate indicative guide: 1.0930-1.1010
• FX specialist transfer rate guide: 1.1090-1.1140
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The UK's rapid vaccine rollout can help the Pound-to-Euro exchange rate (GBP/EUR) break higher over coming days and weeks, according to a leading foreign exchange analys we follow.

Olivier Korber, a FX Derivatives Strategist at Société Générale, says the Euro is "at risk to breaking lower" against Sterling and he recommends a trade that would deliver a profit should his stance prove correct.

In a strategy briefing note to clients of the French investment bank, Korber adds that a central rationale for the the trade is that Sterling "could benefit from UK vaccination momentum".

"While recent ILS outperformance reflects the massive vaccination campaign in Israel, UK is nonetheless leading G10 economies," says Korber. (ILS being the Israeli Shekel).

"Sterling is another currency which should do better the the euro in the weeks and months ahead, but I’m told a positive sterling view is a hard sell, given the dire outlook for the UK economy," says Kit Juckes, foreign exchange strategist at Société Générale.

However, Juckes says that if vaccination can continue at the current pace and the Chancellor can resist premature fiscal tightening, there’s every chance the Pound-Euro exchange rate will reach a target at 1.1628 by year-end.

The UK has now delivered over four million vaccinations, according to UK Prime Minister Boris Johnson, during a visit to a medical facility Oxford Biomedica on Monday.

According to Johnson, nearly half of all those over 80, and half those in care homes have now received their first vaccination.

Some areas that have vaccinated this most vulnerable age group could now start focussing on other high-risk individuals and those aged above 70.

The pace of the UK's vaccine rollout means the country is on target to vaccinate 15 million of its most vulnerable by mid-February. The government wants to gradually start unlocking the economy at some point from the end of February.

It is hoped that the vaccination schedule will allow the economy to be unlocked on a permanent and more durable basis, and if the UK can steal a march on other countries the Pound could find itself bid higher.

"As the euro area is lagging the UK, the pound is in good position to benefit from the local vaccination momentum, in a context where the market consensus is bearish across the board on the UK outlook," says Korber.

Above: The GBP/EUR rally has rejected at a key resistance point, again.

The Pound-to-Euro exchange rate last week rallied to a key technical make-or-break level in the vicinity of 1.1280, which equates to a solid support level of 0.8870 in the Euro-to-Pound exchange rate, which is the preferred approach to this pair by technical analysts.

According to Korber, breaking through this support level in EUR/GBP "would generate a larger move than a bounce, and, in any event, current levels are an unstable equilibrium that should support near-term volatility."

Beyond vaccines, the analyst adds that the Euro could underperform, weighed down by the political crisis in Italy.

"As the outcome remains very uncertain, FX market nervousness could weigh further on the euro," says Korber.

The strategist is targeting a potential decline in EUR/GBP to 0.87, which approximates to 1.15 in GBP/EUR.

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