Pound Sterling Outlook Underpinned by Vaccine Supply Assurances, Strong Start to New Week vs. Euro and Dollar

- GBP recovery stalls at start of new week
- GBP sentiment linked to vaccination programme
- Moderna jab rollout to underpin UK vaccine rollout

Moderna vaccine

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The British Pound strengthened against the majority of its peers at the start of a new week that will bring with it the close of March and the first quarter of 2021. 

Sterling near-term momentum is turning increasingly constructive, having recovered through the latter part of the previous week with analysts saying positive sentiment concerning the UK's vaccine-driven economic rebound remains the fundamental source of support for the currency.

The Pound fell back against the Euro and Dollar from mid-March through to late-March on concerns that a slowdown in vaccine supplies to the UK would hamper the country's inoculation drive and compromise the roadmap for exiting lockdown.

Concerns of a slowdown in the vaccination drive ultimately drew questions on what has been a significant driver of Sterling strength according to analysts.

But, the government remains adamant that an increasing supply of Covid-19 vaccines in the coming months to allow the UK to "increase the pace" of its rollout.

Housing Secretary Robert Jenrick told Sky News the UK would retain a lead on other countries in rolling out the vaccine and that the government was "on course" to meet its target of offering a first dose to the top nine priority groups by 15 April and all UK adults by the end of July.

As of Saturday, 30,151,287 people had received their first dose, with 3,527,481 of those having a second dose and are therefore considered fully vaccinated.

"We've built an infrastructure in this country that really is world class, it would enable us to vaccinate even more people than we have done in recent weeks - millions more people," said Jenrick.

Meanwhile it was reported at the weekend that supplies of the Moderna vaccine would start arriving in the country at some point in April which could allow those in the 40-50 year age bracket to be offered their first dose of the vaccine.

"The pound has shown tentative signs of bottoming as the UK maintains that it has enough vaccine supply to inoculate all adults by August," says Joe Manimbo, Senior Market Analyst at Western Union.

The Pound-to-Euro exchange rate fell to a low of 1.1564 last week before recovering to test the key 1.17 resistance level. At the start of the new week the pair is back at 1.1687, apparently not yet able to crack the significant resistance layer at 1.17.

The Pound-to-Dollar exchange rate fell to a seven-week low at 1.3670 before recovering back to 1.3787. At the start of the new week the pair is back to 1.3766 as investors bid the Dollar amidst a fall in global stock markets.

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The fall in stocks is apparently linked to the failure of a U.S. hedge fund, which has sent ripples across the global financial sector, increasing demand for the safe-haven U.S. Dollar.

Analysts say the Pound has benefited from the UK's rapid vaccine rollout over recent weeks, and in the first half of March it held the crown as the 2021's best performing currency.

But that crown slipped on threats by the EU to block vaccine supplies to the UK from EU-based companies and reroute them to their own vaccine programme, leading to concerns that the country's roadmap out of lockdown might be delayed and with it an economic revival.

But, the government has maintained the message that they believe their supply pipeline has ultimately not been impacted by the EU.

"So the more vaccines we can secure, the more jabs can go into people's arms. But we do have enough supply in sight to continue to meet our obligations," said Jenrick.

Concerns for the UK's vaccination programme grew when it was recently revealed a consignment of 5 million Oxford/AstraZeneca vaccine doses due for delivery from India were being delayed as that country fought a growing outbreak of cases.

"Sterling has continued to show a level of resolve, not reacting much to ongoing volatility in some other markets. The provision of vaccines in the UK continues to support sterling and will allow the pound some benefit of the doubt as and when concerns over reopening of the economy seep back into conversations within markets," says Jeremy Thomson-Cook, Chief Economist at Equals Money.

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Foreign exchange market participants anticipate a rapid recovery in UK economic activity over coming months as covid restrictions are eased on a sustainable basis, thanks to the vaccination programme.

March 29 sees a further tentative easing of the lockdown in England as families are allowed to meet outdoors and other outdoors-based social activities are allowed to resume.

The economy is expected to see a more notable pickup from April 12 when parts of the hospitality sector and non-essential retail sector reopen.

Bank of England Chief Economist Andy Haldane last week said the economy could be in for a "rapid-fire" recovery.

Previously he warned the pace of the recovery could risk higher-than-expected inflation rates in the future, which markets interpreted as a sign UK interest rate rises might occur as early as 2022.

Recent gains by the Pound were most notable against the Euro owing to concerns that the reopening of the Eurozone economy might be delayed as Covid-19 cases rise sharply across the continent, leading the health minister of Germany to say a growing third wave could be worse than the second.

"Europe is now being squeezed on two sides. Vaccine supply is less than initially hoped for and faster spreading variants have become dominant, so health care pressures have not only persisted, but actually intensified," says Ruben Segura-Cayuela, Europe Economist at Bank of America.

In France, Italy and Germany Covid-19 infection figures are rising significantly suggesting a third wave of infections is now underway.

In Germany, infection figures continued to rise sharply over the weekend. The 7-day incidence climbed to 134.4 per 100,000 inhabitants yesterday, an increase of 27 compared to Sunday a week ago.

"The euro cannot buy a bit of help at the moment, pushed lower across the board against risk assets and also havens. We could be beginning to see the euro being used as a funding currency for riskier bets or simply no real reason for holding the single currency being evident. Either way, the EUR has a lot to do to recover back to a level that could be considered fair value," says Thomson-Cook.

In France an average of more than 55 new infections per 100,000 inhabitants was reported over the past seven days, 11 more than a week ago.

In Italy, the 7-day average has been hovering around 37 per 100,000 inhabitants for about two weeks now, suggesting perhaps the outbreak has stalled.

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