The Euro’s fortunes could change in April as the EU receives a substantial bump in vaccine supplies, a development that comes just as the UK sees its vaccine supplies come under pressure, spelling a potential reversal in fortunes for the Pound-Euro rate over coming weeks.
The Slowdown in Rollout Could Hurt GBP
Analysts consider vaccinations an important input in foreign exchange market performance at present, as they offer covid-hit economies the prospect of a sustained and lasting release from damaging lockdowns.
A swathe of researchers has credited the UK’s lead in the vaccination rate we follow as one reason for the Pound’s strong performance in the first quarter of the year.
Likewise, a slow rollout in the Eurozone has prompted economists to push back expectations for the region’s economic rebound, which has in turn been linked to the Euro’s soft start to 2021.
“Europe’s vaccine program remains in first gear, and relative growth has moved strongly against EUR/USD. We stay neutral EUR/USD,” says Brian Daingerfield, Head of G10 FX Strategy at NatWest Markets.
The divergence in fortunes between the UK and EU has allowed the Pound-to-Euro exchange rate (GBP/EUR) to rally from the year’s opening level of 1.1130 to reach a new 13-month high on Monday, March 29 at 1.1756, a level repeated on Wednesday, March 31.
Yet, foreign exchange markets are forward-looking in nature. Therefore, a shift in sentiment on relative vaccination rates could determine how the Pound and Euro trade in April and through the second quarter of the year.
The UK is expected to see a reduction in its vaccines’ supplies following a bumper second-half of March, with vaccination centers told that a drop in supply was expected from March 29 and would likely last for four weeks.
“FX investors also seem to worry about a potential disruption of the UK’s vaccination campaign in April following the recent delays and restrictions of vaccine imports from the EU and India,” says David Forrester, FX Strategist at Crédit Agricole.
Five million doses due from India in March were delayed by authorities in India who were concerned with a spike in domestic covid-19 cases, while the flow of vaccines from a Dutch manufacturer of the AstraZeneca vaccine is in doubt given the EU Commission has warned it would restrict exports if supply targets to the EU are not met.
“Given that the GBP’s recent rally relied heavily on the success of the UK vaccine rollout so far this year, any evidence that the rollout will be slowing could fuel concerns about delays of the government’s plans to reopen the economy and thus continue to hurt the currency,” says Forrester.
Crédit Agricole says a more cautious stance on the British Pound is warranted as a result, even if risk sentiment starts to improve in the coming weeks.
The UK faces a new problem in April. The number of second doses jumps sharply, meaning that to maintain an edge in the vaccination race, the country will need supplies to accelerate if the numbers receiving the first dose keep rising.
March 30 was the first day that second doses surpassed second doses, with 224,590 new first-dose vaccinations administered, against 270,526-second doses.