Pound Sterling's New Vaccine Bounce vs. Euro: Analyst

  • UK booster programme lifting GBP/EUR
  • Germany eyes a lockdown
  • Netherlands to tighten restrictions
  • UK Covid-related ICU pressures falling

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The British Pound could be enjoying another 'vaccine bounce' according to a leading investment bank as the UK's booster rollout contrasts favourably to those of the major Eurozone countries.

Crédit Agricole's foreign exchange researchers say the Pound is outperforming the Euro as the Covid situation in the Eurozone worsens, saying the advanced speed of the UK's booster rollout could be the cause.

"The latest wave of the Covid pandemic in Europe has had a rather different impact on the GBP and EUR," says Valentin Marinov, Head of FX Research at Crédit Agricole.

"Whereas the latter slumped to fresh lows across the board, the former seemed to be holding up relatively better," he adds.

The Euro is one of 2021's worst performing G10 currencies with much of the losses coming over recent weeks amidst concerns that the region's economy would slow under the strain of surging Covid infections.

Coronavirus infections broke records on Wednesday in parts of Europe while major EU states were closer to joining Austria in imposing new lockdowns.

"Heightened lockdown risks in the Eurozone and the subsequent concerns on activity have continued to weigh on the EUR, even though no fresh restrictions were imposed by the newly-announced traffic light coalition in Germany," says Marinov.

"Yet, the situation there and in other Eurozone states remains quite precarious, which could hold back any tentative EUR recovery for the time being," he adds. 

  • Reference rates at publication:
    GBP/EUR: 1.1887 \ GBP/USD: 1.3385
  • High street bank rates (indicative): 1.1654 \ 1.3110
  • Payment specialist rates (indicative: 1.1830 \ 1.3320
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Reports on Wednesday said Germany was due to announce a new lockdown amidst increasing pressure on its hospitals, the Dutch government also said it was to announce a stricter regime on Friday.

New coronavirus containment measures will be announced in France on Thursday, government spokesman Gabriel Attal said.

Attal said the government will strengthen social distancing measures and speed up its vaccination campaign amid a surge in cases.

The UK by contrast has very limited restrictions as it sees hospitalisations, ICU admissions and deaths continue to fall back, meanwhile case rates extend a broad sideways drift.The contrasting fortunes between the Eurozone and UK have been described by analysts as a supportive fundamental development for the Pound relative to the Euro.

Indeed, the Pound to Euro exchange rate (GBP/EUR) trades close to 11-month highs at 1.19 and could be on course to record its biggest annual gain in six years provided gains stick into year-end.

To date there is little indication the UK is on course to suffer a Eurozone-style wave as the country appears to be benefiting from three decisions related to Covid management:

1) The UK removed all restrictions during summer, with Prime Minister Johnson and medical experts saying at a Downing Street press conference this could see cases rise but ultimately avoid a winter peak.
2) roll out boost vaccines rapidly, and
3) the heavily-used AstraZeneca vaccine is said to be showing longer-term protection relative to its mRNA peers.

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Boosters are proving particularly potent in keeping pressures on the UK health service manageable, thereby keeping at bay calls for tighter restrictions.

"We think the fact that the UK is back to being the G10 leader in terms of total number of vaccines as a share of the total population gives FX investors confidence that, unlike the Eurozone, the UK will not resort to fresh restrictions to fight the pandemic," says Marinov.

On Wednesday, in what has been described as a "a major shift" in policy, the EU said vaccine boosters should be considered for all adults.

"Booster doses should be considered for all adult individuals prioritising persons above 40 years of age," said Andrea Ammon, the head of the European Centre for Disease prevention and Control (ECDC).

In its previous guidance issued in September alongside the European Medicines Agency (EMA) the ECDC said there was no urgent need for the administration of booster doses to fully vaccinated individuals in the general population.

"Available evidence emerging from Israel and the UK shows a significant increase in protection against infection and severe disease following a booster dose in all age groups in the short term," the ECDC said in a report published on Wednesday.

EU states are not bound to ECDC guidance and the UK in fact rolled out boosters behind a number of EU countries.

But the above chart attests to the UK's haste to administer doses, having identified the waning of vaccine effectiveness.

The rapid rollout is a repeat of the UK's initial rollout which was credited as underpinning a jump in the value of the Pound in the first three months of 2021.

Marinov says the Euro could make a comeback against Pound Sterling to the extent that the latest circuit-breaker lockdowns in the Eurozone help slow down the pandemic.

"This could limit any EUR/GBP downside from here," he says.