According to several analysts, the British Pound and Euro would likely be losers in a spat over vaccines between the EU and UK, with the U.S. Dollar likely to benefit.
Vaccines matter for the Pound, which analysts say has benefited from the UK’s rapid vaccine rollout over recent weeks, and in the first half of March, it held the crown as 2021’s best-performing currency.
But this crown is at risk of slipping given increasing dissatisfaction amongst Eurozone member states with the bloc’s lackluster vaccination program, which they believe is partly due to a lack of supply from British-Swedish manufacturer AstraZeneca.
A solution being prompted by various European officials is to restrict the export of vaccines to the UK and other select nations.
“We note the increasing FX market importance of any further escalation of the post-Brexit tensions between the UK and the EU or the latest concerns about potential disruptions of the UK vaccination rollout. All of these considerations warrant a more cautious outlook on the GBP, especially vs. the USD,” says David Forrester, FX Strategist at Crédit Agricole.
Vaccine Rollout
The European Commission and countries such as France and Germany have, at various points over recent weeks, expressed a desire to block the export of vaccines to the UK in the hope of bolstering the rollout in the EU.
Over the past weekend, these calls grew louder, and there have been numerous press reports that this Thursday’s European Council meeting will see leaders decide whether or not to block exports to the UK. Such a development would exacerbate supply concerns in the UK, given warnings made last week that April was already likely to see supplies fallback and the program slow.
“Near term, the pound is likely to remain driven by developments between the UK and its major suppliers of the vaccine, particularly given reports of a potential slow down in supply in the coming weeks,” says Nikesh Sawjani, an economist with Lloyds Bank.
Reports suggest Prime Minister Boris Johnson will attempt to dissuade the Commission and member states from taking such action over the coming days, while Ireland’s Taoiseach Micheál Martin told Irish broadcaster RTÉ he is against the EU placing export bans on Covid-19 vaccines, describing it as a “retrograde step.”
The imposition of a ban could slow down the UK’s vaccination drive, although it is too soon to say specifically to what degree.
Nevertheless, from a foreign exchange perspective, the spat generates uncertainty, and since the 2016 EU referendum, the Pound has shown itself to be highly sensitive to such uncertainty.
The Pound-to-Euro exchange rate rallied as high as 1.1717 last week, but the market shows itself unready to break to fresh one-year highs above this level.
Sterling still ultimately remains relatively well supported against the Euro, with pullbacks remaining shallow.
Rather, it is against the Dollar where weakness is most apparent: the Pound-to-Dollar exchange rate had gone as high as 1.42 by late February but has over the course of March edged back to the 1.38s we are currently seeing.
Meanwhile, many foreign exchange analysts say the Euro is equally exposed to Dollar strength, given the Eurozone’s obvious struggle to match the U.S. and UK in vaccinating its population.