Pound "Could be a Hero Among Major Currencies" says Analyst

Above: London, United Kingdom. Boris Johnson Press Conference on Covid-19. Picture by Andrew Parsons / No 10 Downing Street.

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2021 is expected by analysts to be the year of the vaccine, in which the currency of the economy that is unlocked first is the currency that is sought.

On this basis the British Pound could put a shaky start to the year behind it and rally against its major rivals, provided the government meets its target of vaccinating the most vulnerable portion of society in a timely fashion.

UK Prime Minister Boris Johnson wants this target to be achieved by the end of February at the latest, allowing for a gradual opening up of the economy thereafter.

At a press conference held on Thursday "hundreds of thousands of vaccines per day” were expected to be delivered by Jan. 15 and every care home resident vaccinated by end of January.

Should the rollout succeed the UK could open up on a more sustainable basis, allowing the British Pound to potentially outperform other currencies.

The potential for outperformance against the Euro is particularly sizeable given the sclerotic start to the vaccination programme in the EU.

Helen Whately, a government health minister told Parliament on Wednesday that 1.3million people had received a jab, but according to Johnson on Thursday that total had risen to 1.5 million people. This is a 200K increase in just a day and points to a run rate of 1.4 million a week if replicated.

Johnson said the army had been brought in to assist with the logistics of ramping up the vaccination programme while "hundreds" of community pharmacies would be asked to assist with the distribution of the vaccine.

The Prime Minister said it was the government's aim to have a vaccine centre within ten miles for everyone in the country.

More than 1,000 GP centres, 223 hospitals and 200 pharmacies will be giving injections by the end of the week.

“If all goes well, these together should have the capacity to deliver hundreds of thousands of vaccines per day by January the 15th," said Johnson.

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Sterling is said to be undervalued by a host of economists we follow, and a shot of good news on the vaccine front could allow it to trend higher to 'fairer' levels.

Critically, the vaccine will provide confidence that the next unlocking of the economy will be a more permanent one, allowing businesses and individuals to begin investing on a longer-term horizon.

"Sterling might find itself in the unusual position of being a hero among major currencies if the UK succeeds in vaccinating around 14 million people against COVID-19 by the middle of February," says Robert Howard, a Reuters market analyst.

So far, more than 1.3 million people in the UK have so far received one shot of AstraZeneca or Pfizer's Covid-19 vaccines.

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"If Britain's vaccination programme goes to plan, it could give a spring boost to a UK economy, which looks likely to tip back into recession, caused by a surge in COVID-19 cases that has triggered a third national lockdown. ... any such boost to the UK economy could lift Sterling," says Howard.

The Pound has struggled in 2021 with the good news concerning the signing of a UK-EU trade deal quickly fading and giving way to concerns over a rapidly accelerating covid-19 crisis. The lockdown announced on Monday by Johnson lead to further declines in Sterling against most its major peers.

The Pound-to-Euro exchange rate slipped back below 1.10 and the Pound-to-Dollar went back below 1.36.

However, sentiment towards Sterling and the UK economy remains resolutely low and analyst Kit Juckes at Société Générale points out that it will require ever more negative news to keep pushing Sterling lower, which is looking unlikely.

If the vaccine programme accelerates sentiment could well swing back in favour of Sterling and the economy.

"The pace of vaccine rollout is key to hopes of a March recovery; the government's plans look achievable, just," says Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics.

AstraZeneca has said it aims to fulfil a delivery schedule amounting to two million doses a week by February, while Pfizer have already delivered four million vials of their vaccine as of end-2020.

UK media report Pfizer will deliver more vials in January as it tries to fulfil the UK's order for 40 million doses.

But, should the vaccine rollout programme hit snags, sentiment might remain suppressed.

"A slower rollout of vaccines is a clear downside risk to our forecasts. Medical staff availability, quality control testing capacity and excessive bureaucracy could all constrain the rollout," says Tombs.

Bernhard Eschweiler, Senior Economist at QCAM Currency Asset Management AG says one risk is that the vaccines fail in medical terms.

"This is not impossible but not a serious risk in our view. Bigger is the risk that the deployment is slower than expected and that not enough people are vaccinated by the third quarter before the fall and winter season starts again," says Eschweiler.