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Pound Sterling 'Wins' the Vaccine Race

- UK was first country to sign a binding order with Pfizer
- UK has broadest 'vaccine basket' of any country
- GBP tipped as a winner of vaccine developments by analysts

Hancock

Above: Matt Hancock MP, Secretary of State for Health and Social Care Credit: ©UK Parliament/Jessica Taylor

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The British Pound advanced to register two-month highs against the Euro and Dollar in mid-week trade, carried along by improved investor sentiment triggered by the news of a successful covid-19 vaccine candidate from Pfizer.

The UK preordered a substantial amount of the Pfizer vaccine ahead of any other country and it is believed this early move puts it at the 'front of the queue' for the vaccine's rollout, should the vaccine achieve final approval.

A successful vaccine rollout could mean the UK economy potentially unlocks sooner and faster than its peers, which has the potential to bestow a performance advantage on Sterling.

Indeed, the Pound's gains against the Euro, Dollar and all the major currencies comes in vacuum of news concerning Brexit, suggesting an idiosyncratic factor other than Brexit is at play.

The Bloomberg newswire reported on Tuesday that Canada expects to access the Pfizer vaccine in early 2021 "at about the same time as the EU, Australia and others, but possibly after the U.S. and Britain".

From a foreign exchange perspective, the positioning of the U.S. and Britain in the pecking order is significant.

"Notable that UK could have Pfizer vaccine first. Adds support for UK services sector. Access to vaccine likely to become a factor down the line as some economies can get back to normal before others," says Joshua Mahony, Senior Market Analyst at IG.

The UK was the first country to make a "binding agreement" order with Pfizer and BioNtech for their vaccine candidate back in July, a decision that appears to have paid off and placed the country at the front of the queue. "It’s the right thing to be doing to be at the absolute front of the queue to make sure we’re in a position to get those vaccines first when they become available," Education Secretary Gavin Williamson told the BBC in July when the Pfizer deal was agreed.

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Should the U.S. and UK receive the Pfizer vaccine first - as per the Bloomberg report out Tuesday - it would imply the two countries are on course to get on top of the pandemic ahead of other countries, and in a world where foreign exchange valuation are built on relative economic performance, the Pound and Dollar could duly benefit.

"One currency which could do very well from vaccine developments, is Sterling," says Kit Juckes, Global Head of Foreign Exchange Research at Société Générale. "Sterling, like every other major currency except for the yen, is up against the dollar too. But the elephant remains in the room, in the form of UK/EU trade talks. The Kiwi's reaction to rates not being cut again, just reinforces my belief that a trade deal could take GBP/USD to 1.40 in the coming weeks."

In the aftermath of the Pfizer news the Pound-to-Euro exchange rate hit a two-month high at 1.1255 while the Pound-to-Dollar exchange rate went to a two-month high at 1.3279.

The U.S. is likely to commence a rollout around about the same time as the UK does, but the logistical challenges of 328 million people is substantial, meaning the UK's smaller population and smaller geographical span again gives it an advantage. This in turn could hint at the potential for Pound-Dollar outperformance.

"Even if our timeline and vaccine assumptions are validated, it remains unlikely that the U.S. could reach anything resembling population immunity in less than a year (and certainly not in the next two quarters). Until then, millions of workers remain unemployed," says Ajay Rajadhyaksha, an economist at Barclays.

The UK have procured 40 million doses of the Pfizer vaccine and once approved, the NHS stands ready to begin a vaccination programme for those most at risk. Health Secretary Matt Hancock has indicated that rollout of the vaccine could take place as early as December.

"If this or any other vaccine is approved, we will be ready to begin a large-scale vaccination programme," Hancock said in Parliament. "We do not yet know whether or when a vaccine is approved, but I have tasked the NHS with being ready from any date from 1 December."

Weekly testing Europe

Above: The UK easily outstrips its European peers in testing.

Come midweek and markets are now apparently digesting the news from Pfizer, and this period of contemplation has allowed markets to settle.

The Pfizer vaccine looks to be an incredibly challenging candidate to roll out in a mass vaccination programme, due to 1) its cost and 2) the temperatures it must be stored at.

1) The cost of the Pfizer vaccine is said to be around the £29.47 mark for two doses, which contrasts to the £2-3 being cost being touted for the AstraZeneca candidate.

2) The Pfizer vaccine must be stored at around -70c, which makes for a significant and expensive logistical challenge when it comes to roll out.

This is why the AstraZeneca really could be the 'silver bullet' the world needs - for sure, developing countries can only really expect to roll out a vaccine that is both cheap and robust.

Yet again though, the UK's small geographic size, population density, pre-planned rollout programme and significant budget dedicated to the Pfizer vaccine and its rollout means it is a viable candidate.

The UK, its economy and currency could therefore find itself in an advantageous scenario relative to other countries in a scenario where the Pfizer vaccine is rolled out but the AstraZeneca vaccine disappoints.

 

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But it's not just the UK's exposure to Pfizer's vaccine candidate that will prove a relative advantage to Sterling.

The UK could be set to benefit from a strategy of investing in a basket of other vaccine candidates, in fact the UK has the largest basket of any other country in order to develop a hedge on being exposed to the first vaccine.

Data from Deutsche Bank shows the UK has preordered enough vaccines to provide five doses per citizen, with the government hedging its bets by placing orders with six of the leading vaccine developers; more than any other country.

"For FX in particular... we argue that it also matters which specific vaccine candidate wins the race," says Robin Winkler, Strategist at Deutsche Bank.

There are currently more than 150 vaccines in development, however the field does have some standout candidates who are likely to cross the finish line first and 'win the race':

Deutsche Bank

According to Deutsche Bank, a successful Oxford/AstraZeneca vaccine would be most universally helpful as of today given that more countries globally will have access to the vaccine.

"Most major countries - the US, the EU, the UK, Japan, Australia, China - have pre-ordered hundreds of millions of doses each. But developing nations are also heavily invested, either directly or indirectly. Covax, a facility funded by international organisations including the WHO to ensure vaccine access for poor countries, has spent the bulk of its resources on an agreement with AZ," says Winkler.

Vaccine portfolios

Country Snapshots:

U.S.: "The US has built the second largest portfolio in per capita terms. Its strength, even compared to the UK, is that it has agreements for at least one dose per citizen of each of the three leading candidates in phase III trials," says Winkler.

New Zealand, Norway: "It is worth noting that New Zealand and Norway, have struck no bilateral agreements with manufacturers, committing instead to participating in the international Covax facility. In a nationalistic scramble for supplies this may prove an economic disadvantage," says Winkler.

EU and Japan: "Both have somewhat smaller portfolios, having pre-ordered about four doses per citizen," says Winkler.

Canada: "A large vaccine portfolio that guarantees substantial per-capita supplies of four leading candidates. There is one glaring absence in the portfolio, however: AstraZeneca. Perhaps relying on the Covax facility to get access to a successful AZ vaccine, the Canadian government has so far refrained from making its own bilateral deal," says Winkler.

Australia: "Ordered 25m doses of the AstraZeneca vaccine. Should this candidate prove effective, this would suffice to vaccinate half the population, assuming two doses are needed per person. Beyond AstraZeneca, however, Australia has refrained from making deals with any other manufacturers, instead investing heavily in a candidate developed by the University of Queensland, hoping to obtain 85m doses next year if approved. Compared with other governments, this is a relatively concentrated portfolio," says Winkler.

Switzerland: "Appears to have put all its eggs into the Moderna basket, having signed an agreement to purchase and also manufacture significant quantities of a potential vaccine, at least relative to its population," says Winkler.


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