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Pound to Euro Eyes 1.11 Pivot, UK Vaccination Programme Accelerates

NHS Vaccine

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  • GBP/EUR spot at publication: 1.1085
  • Bank transfer rate (indicative guide): 1.0790-1.0870
  • FX specialist providers (indicative guide): 1.0980-1.1000
  • More information on FX specialist rates here

The British Pound started the new week off on a softer footing, but some buying interest through the London session ignited another attempt at the 1.11 fulcrum.

Gains could accelerate should the market start paying attention to the UK's rapid vaccine rollout, which steps up a gear on Monday.

1.11 in GBP/EUR is a notable level as it relates to the 0.90 psychological and technical level in the Euro-to-Pound exchange rate cross (EUR/GBP), which is what the world's traders prefer to focus on when trading this pair.

Our readers do however primarily focus on the exchange rate from then Pound-to-Euro perspective, therefore 1.11 is the number to watch.

Action in the exchange rate since summer 2020 has largely centred around 1.11, with rallies and slumps in either direction ultimately fizzling out and leading to a reversion back to the 1.11 area.

Importance of key level in GBP/EUR

Above: GBP/EUR chart showing 1.11 level.

Consistent with this behaviour, at the time of publication there appears to be another move towards 1.11.

An overshoot over coming days could well be possible, particularly if the market starts to factor in the rapid acceleration of the UK's vaccination programme.

It was revealed the country vaccinated 2.4 million people by Sunday.

The rate of vaccinations is expected to accelerate following the opening of mass vaccination centres across England that will see racecourses, football fields and conference centres converted into temporary hubs.

In addition, more hospital sites and GP practices are to come on stream this week which will further accelerate the UK's race against rising covid-19 infections.

Should the UK inoculate 15 million of its most vulnerable citizens by mid-February - as is the desire of Prime Minister Boris Johnson, the UK will have done so well ahead of the Eurozone and U.S.

"The growing network of vaccination sites will rapidly expand in the days and weeks ahead. Currently, 96% of the population in England is within 10 miles of a vaccine service. By the end of January, everyone will live within 10 miles of a vaccination centre. In a small number of highly rural areas, the vaccination centre will be a mobile unit," reads the UK Covid-19 Delivery Plan, published Monday.

By the end of January the government wants enough capacity to vaccinate several hundred thousand a day, and at least 2 million people per week.

This will be conducted via 206 active hospital hub sites, around 1,200 local vaccination service sites (including primary care networks, community pharmacy sites, and including the ability to travel to those who cannot come to a centre).

The government wants 50 dedicated large-scale vaccination centres activated by month-end.

Success in delivering these goals could allow the UK to exit lockdown ahead of other countries, offering the scope for economic outperformance and a more sustained recovery in the Pound.

The contrast with the EU is stark where latest figures show Germany has vaccinated 600k and France just 80K.

As such, the outlook for the Pound-to-Euro exchange rate remains constructive on a multi-week timeframe on the basis of potential economic outperformance, but we are wondering if this alone will allow the Pound to muster the strength required to break out of its recent multi-month range and make a concerted move higher.

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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.

"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," he adds.

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