UK vaccine milestone boosts Sterling to 34-month high against the US dollar

Mon 15 Feb 2021
Posted by: William Barns-Graham
Features

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The UK reaching its target of vaccinating 15 million vulnerable people by mid-February further strengthened the pound last week, with hopes now high for the country’s economic recovery from the Covid-19 pandemic.

In the US, former President Donald Trump’s acquittal made plenty of headlines in the news but did little to affect financial markets. Investors continue to be more focussed on his successor Joe Biden’s efforts to pass a stimulus package worth up to $1.9 trillion.

This has boosted equity markets and the oil price.

Vaccine milestone boosts Sterling

The UK reaching its mid-February vaccine rollout target has boosted the perception among investors that it will be in a better position to re-open its economy quicker. The UK is expected to announce its roadmap to exit the latest lockdown as early as this week.

This could further strengthen the pound’s rise against competitor currencies, particularly if traders adopt a ‘buy the rumour and sell the fact’ strategy.

High against the dollar…

This vaccine optimism has pushed Sterling to a 34-month high against the US dollar, valued at US$1.39 this morning.

The US dollar index (DXY) slipped last week from a high of 91.23 to open this week at 90.30.

…and the Euro

The eurozone’s comparatively slow vaccination rollout has seen the single currency lose ground to the pound.

Sterling rose to the mid €1.14s this morning from a low of €1.137 last week. This is its best level since last May, and within striking distance of the psychological €1.15 mark.

Euro holds vs dollar

Against the dollar, the euro is holding in the middle of its recent US$1.20-1.23 range.

It received support as former ECB President ‘Super’ Mario Draghi – the man credited with saving the euro – was sworn in as Italian prime minister, averting a potential political crisis in the EU’s third largest economy.

Japanese growth

Stock markets were boosted by the Japanese economy growing above expectation at 3% in the last quarter of 2020.

A study of 600,000 people from Israel also showed the Pfizer vaccine reduces Covid symptoms by as much as 94%. This has led to global equity markets rallying with the Japanese Nikkei rising nearly 2% today.

Oil buoyed

Buoyant markets boosted the oil price from a low of $57.50 per barrel of WTI Crude last week back to around $60.50 this morning, its highest level since last January.

Cryptocurrencies

There was a sharp spike in the price of Bitcoin on the news that Tesla has bought $1.5 billion worth of the cryptocurrency and may accept it as payment in future.

Meanwhile, Bank of New York Mellon and Morgan Stanley indicated they could also look to invest in the space.

Bitcoin surged from around US$38,500 last Monday as high as $49,700 over the weekend, settling at around $47,500.

The week ahead

There is a busy schedule of economic releases coming up this week, including US retails sales and industrial production which are expected to show the US economy gaining momentum in 2021.

Other reports to watch are the UK inflation report and the eurozone industrial production and Q4 GDP data.

Economic data

Highlights this week include:

Today (15 February)

  • Eurozone industrial production figures
  • Bundesbank monthly report

Tuesday         

  • German ZEW economic survey
  • EU Q4 GDP
  • Speech from:
    • US FOMC’s (Federal Open Market Committee) Daly  

Wednesday   

  • UK January inflation report
  • ECB monetary policy statement
  • US retail sales
  • Industrial production and API weekly crude stocks.
  • Minutes of US FOMC interest rate meeting
  • Speech from:
    • UK FOMC member Ramsden

 Thursday        

  • ECB minutes from last interest rate meeting
  • US weekly jobless claims
  • Speeches from:
    • Bank of England’s Saunders
    • US FOMC’s Brainard 

Friday              

  • UK January retail sales data
  • Preliminary global PMI data for February
  • US home sales figures