For the British Pound, most of the good news could now be ‘in the price’ according to analysts at two of the UK’s most recognizable high-street banks, meaning the bar to further gains might be a great deal higher.
Analysts Wary of Pound Sterling Performance
Analysts at NatWest Markets and Barclays have told clients the Pound’s recent strong run against the Euro, Dollar, and other major currencies might be running low on fuel as the country’s vaccination advantage becomes a spent theme.
The call comes just days after the Pound reached new multi-month highs against the Euro and Dollar before falling back.
The Pound-to-Euro exchange rate reached 1.1707 but is back to 1.1570, while the Pound-to-Dollar exchange rate reaching 1.4243 before paring the advance to current levels at 1.3940.
“Many positives are in the price of the overvalued and overbought GBP in our view,” says Valentin Marinov, Head of G10 FX Strategy at Crédit Agricole. “The GBP has little else to offer beyond its apparent vaccine advantage.
At the heart of any argument that the Pound might be running out of new reasons to climb is the UK’s vaccination program, which has delivered at least one dose to 20 million people, meaning a third of the population will soon have a high degree of protection to a hospitalization caused by Covid-19.
“GBP and CLP were the obvious winners in the recent weeks, with speedy coverage and declining new infection in the country, along with diminishing Brexit uncertainty for GBP and higher copper price for CLP,” says Ashish Agrawal, an analyst with Barclays in London.
Agrawal says a look at the share of the population who have received at least one dose of the vaccine reveals Israel, UK, Chile, and the US are leading the other countries by a large margin.
“We think most of the good news is already in the price,” says Agrawal.
“Sterling’s recovery has at its heart the UK economy’s sensitivity to a successful vaccine rollout rather than the timeliness of the rollout relative to other countries,” says Paul Robson, Head of G10 FX Strategy at NatWest Markets.
By contrast, the virus is spreading more strongly again in the EU, meaning a sustainable lockdown from the exit is less clear, offering a potential upside boost for the Pound-to-Euro exchange rate.
In Germany, the Eurozone’s largest economy, an exit from lockdown looks frustratingly difficult to achieve given the number of people infected with COVID-19 in the last seven days increased to 65.8/100K.
German politicians have said they will begin easing lockdown conditions should cause the figure to fall to 35. Meanwhile, cases in the UK are plummeting, with 5,455 new cases of covid-19 being reported on Monday, nearly halving the 10641 cases seen last Monday. Deaths came in at 104, down sharply on the previous Monday’s 178 deaths.
The data means the UK’s cautious roadmap out of lockdown is not only achievable but, more importantly, it looks sustainable given a growing vaccine backstop.
But the progress of the pandemic in the UK has been well signposted over recent weeks, meaning it is now unclear whether this can continue to be a source of support.
Robson says additional vigilance on Sterling will now be required as the rally seen over recent weeks might be reaching its peak.
“While the government’s roadmap for an easing of lockdown restrictions was on the cautious side of expectations, this doesn’t appear to have derailed the currency’s rise. But the recovery story is now far better priced,” says Robson.