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Pound / Euro Rate Looks to Regain 1.19 after 7% Rally in 2021

The Pound to Euro rate was testing the waters above 1.19 in the penultimate session of 2021, leaving it within close reach of the year’s highs as Sterling looked to cement a more-than seven percent gain for the period.

Sterling was up 7.4% for 2021 as the Pound-to-Euro exchange rate sought to reclaim the 1.19 handle on Thursday following a break above technical resistance near 1.1870 during holiday-shortened trading earlier this week.

This last minute advance placed Sterling on course for an eighth consecutive daily increase against the single currency and positions the Pound-to-Euro rate within arm’s reach of 2021 highs at 1.1931, which were established before late November’s emergence of the Omicron strain of coronavirus.

“Markets remain well-convinced that the BoE will lift its policy rate again at its earlyFebruary meeting, assigning an ~85% chance of a hike with another increase at its May decision fully priced in,” says Shaun Osborne, chief FX strategist at Scotiabank.

“We see the EURGBP deepening its decline from 0.86 earlier this month to a firm break under 0.84 [GBP/EUR above 1.1904] as the BoE is brought to action given steepening inflation and the ECB stands back,” Osborne and colleagues said of their 2022 outlook in a Wednesday market commentary.

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The Pound-Euro rate would potentially have scope to test the 1.20 level and multi-year long layer of technical resistance on the charts early in the new year should year-end trading facilitate a recovery above 1.19.

“The Pound has been feeling better about improved economic data and less concerning news around the dangers of the omicron variant. This has resulted in upwardly revised BOE rate hike expectations as the market gets back to focusing on the economy and the uptick in inflation,” says Joel Kruger, chief FX strategist at LMAX Exchange Group.

“Trading conditions will be thin from now through the second week in January, with so many off the desks for holidays,” Kruger also said on Wednesday.

The Pound-to-Euro rate’s late December advance has been driven most recently by a rally in GBP/USD, which reversed nearly half its decline from 1.39 in September to 1.3163 by late November during the final trading sessions of the year.

Sterling’s year-end rally was ignited earlier in December when official data showed inflation topping 5% for November and employment going unaffected by September’s end of the HM Treasury furlough scheme.

This ultimately triggered December’s Bank of England (BoE) decision to lift Bank Rate to 0.25%, which came as a surprise to the market and marks the first in a likely series of steps to reverse the interest rate cuts announced at the onset of the pandemic in 2020.

“With the pound on the rise today, we can see that higher Omicron cases may not necessarily result in the outlook for sterling losing traction,” says Joshua Mahony, a senior market analysts at online trading firm IG.

“Instead, traders can focus on the fact that the Bank of England decided to raise rates in the face of rising Omicron cases, with a strong chance that the UK will find itself with better herd immunity and an improving economic outlook by the February BoE meeting,” Mahony said on Thursday.

Written by James Skinner

Source: Pound Sterling Live

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Pound plunges to yearly low against dollar on underwhelming UK GDP figures

The pound has plunged to its lowest level against the dollar this calendar year driven by traders dumping the currency after fresh data showed the UK economic recovery is stalling.

Pound sterling dipped to day low of $1.3365, the weakest the pound/dollar exchange rate in 2021, following the release of new GDP data from the Office for National Statistics (ONS) this morning.

The fall was triggered by currency traders selling off sterling holdings due to a weaker than expected quarterly UK GDP clip, which came in at an underwhelming 1.3 per cent for the three months to September, soured sentiment toward sterling.

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The drop was compounded by currency traders pouring into the dollar after a fiery inflation print published yesterday strengthened the prospect of the US Federal Reserve raising interest rates.

Data from the US Bureau of Labor Statistics shows prices are rising at their fastest pace since 1990 in America.

The pound has rebounded over the last month, but was sent tumbling after the Bank of England last week decided to hold interest rates at a record low 0.1 per cent despite expecting inflation to hit at least five per cent in April next year.

Currencies tend to weaken if inflation is strong due to holders of separate currencies losing purchasing power.

By JACK BARNETT

Source: City AM

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Pound Sterling Hits New 2021 Best against the Euro

The British Pound leapt in value against all its major peers on Tuesday, banking gains that come in sympathy with an ongoing move higher in global equity markets which provide the supportive sentiment backdrop within which the Pound traditionally appreciates.

Adding to this is an expectation that the Bank of England could raise interest rates as soon as November 04, putting it months, if not years, ahead of the European Central Bank (ECB) in this regard. However advances against the Dollar remain shallow, given the U.S. Federal Reserve is on target to raise interest rates in 2022 with the November policy meeting likely to provide confirmation of this.

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Confidence for a rate hike at the Bank will have been bolstered by recent signs UK Covid-19 cases are turning lower once more, suggesting the coming winter months might not be as difficult as many had feared, opening up the potential for a robust rebound in economic activity into year-end.

“The British pound hit a new 2021 high versus the euro this morning. In fact, it’s the highest level since the pandemic-induced market turmoil in March 2020. UK bond yields continue to surge with the 10-year yield above 29-month highs, boosting GBP demand, particularly against low-yielding currencies like EUR,” says George Vessey at Western Union Business Solutions.

Pound to Euro exchange rate has reached a new 2021 high after it hit 1.1898 on October 26, the Pound to Dollar exchange rate meanwhile pushed above 1.38 again to quote at 1.3820.

“Pound crosses are continuing to shine brightly today as investors increase their expectations over an imminent interest rate hike in the UK,” says Fawad Razaqzada, Market Analyst at ThinkMarkets.com

Bank of England Governor Andrew Bailey said last week the Bank “will have to act” to keep a lid on inflationary pressures and the markets now expect a 15 basis point interest rate rise to be delivered on November 04.

The risk to the Pound’s recent gains is that this is not in fact delivered and the Bank strikes a more cautious tone on the outlook, in an attempt to pare market expectations for further rate hikes in 2022.

This pushback is expected by numerous analysts we follow: most recently NatWest Markets said they are exiting their long-held bet for Pound-Euro upside saying there is a risk the Bank of England strikes a more subdued tone next week.

“Only a hawkish statement by the Bank of England suggesting a faster sequence of hikes than the market currently expects might support the pound, but this is not something we are expecting,” says Thomas Flurry, a strategist at UBS.

The Euro does however meanwhile appear to be under pressure ahead of Thursday’s European Central Bank (ECB) meeting, where policy makers are expected to push back against market expectations for a 2021 rate rise.

Jeremy Thomson-Cook, Chief Economist at Equals Money, says the ECB meeting on Thursday is “set to offer” Euro weakness.

“We are very much expecting “more of the same” from the European Central Bank on Thursday. There is no way that they can’t acknowledge that inflation has run higher but also they do not want to get dragged into a game of expectations, given the ECB’s dovish proclivities,” says Thomson-Cook.

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Investors will find the October ECB policy meeting more interesting than normal as President Christine Lagarde is expected to fight the market’s expectation that 2024 is too late for a first rate rise.

Euro exchange rates could therefore prove volatile, reacting to Lagarde’s performance.

Market pricing that now shows investors anticipate the first ECB rate rise to fall as early as late-2022 as policy makers are forced to react to rising inflation levels.

Money markets currently expect a rate rises of close to 10bp in a year and more than 30bp in two years.

This expectation has contributed to higher financing levels in the Eurozone over recent weeks, which the ECB is keen to avoid.

Indeed, the ECB are clear that a more appropriate time for such a move would be in 2024, viewing the spike in inflation as a strictly temporary phenomenon.

“We expect the ECB President to argue that the current acceleration of inflation will not persist,” says Silvia Ardagna, an economist at Barclays.

Barclays expect the ECB to talk down current market pricing, “extinguishing any hope of narrowing rate differentials to support the euro higher”.

If the Euro has found support from a recalibration in market expectations it stands that it could weaken if the ECB strikes a convincingly ‘dovish’ tone.

However, if at least some of these expectations persist following the meeting then the Euro could rally.

“We think the ECB will continue to favour extended monetary accommodation, with policy rates at current levels for longer than currently priced and a large and flexible QE programme in 2022,” says Ardagna.

Research from Nordea Bank shows that core inflation is only really likely to reach the ECB’s target levels (2.0% and above) in 2023, which would be more or less consistent with the ECB’s current guidelines.

This should provide the ECB the ammunition to push back the market’s recent unwelcome pricing.

Anders Svendsen, Chief Analyst at Nordea, finds Eurozone headline inflation will peak in the coming months but is then expected to decline substantially in the winter months when Nord Stream 2 starts to operate, easing the pressure on energy prices.

“The higher inflation expectations, which are now prevailing in the financial markets but have also gathered pace among companies and consumers, have the potential to lift nominal wage growth and hence make inflation more likely to remain around the inflation target in a kind of “positive” second-round effect,” says Svendsen.

How the ECB acts in contrast to other central banks matters for currency moves.

“A largely status quo ECB stands in contrast with global central banks looking to normalise,” says Marek Raczko, a strategist at Barclays.

The Bank of England is one such central bank that has signalled a clear intention to act sooner rather than later on normalising rates, fearing that the current surge in inflation caused by rising fuel prices and supply constraints could become embedded elsewhere in the economy.

“EUR/GBP was falling even before interest rates moved in favor of the UK. This likely reflects ongoing euro-area weakness, where energy concerns and China growth challenges have hit the region and hence the currency. Regardless, the combination of these forces has set up the possibility that EUR/GBP could plumb new post-Brexit vote lows,” says a strategy report from CME Group released on October 26.

Written by Gary Howes

Source: PSL

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Pound Sterling to Stabilise Alongside Gas Prices and Broader Market

The Pound Sterling will likely remain under pressure for as long as the UK’s energy crisis and a global stock market sell-off continues, but any signs of stability in these markets will prove supportive.

The UK currency is proving to be one of the most vulnerable of the world’s major currencies to a surge in gas prices that not only threatens to cut off UK consumers but also severely hamper UK industrial output.

This is because the UK is unique in its heavy reliance on gas for electricity output, while a government cap on energy prices distorts the market and leaves many small utility providers unable to operate.

Four energy companies have had to cease trading in the past four weeks alone while the high gas price means Carbon Dioxide production at one of the country’s largest producers has stopped.

Fears for an already under pressure UK supply chain have risen in response, positin severe headwinds to the UK economy just days ahead of a Bank of England meeting.

The price for UK gas scheduled for delivery in October surged 16% on Monday, after Russia capped additional flows to Europe.

Russian state supplier Gazprom opted not to send more gas to Europe via Ukraine in October, according to the results of an auction on Monday, according to reports.

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The Telegraph says there were also signs that Russian flows via the key Yamal-Europe pipeline will remain limited, with traders booking just a fraction of the capacity offered to flow gas next month into Germany via the Mallnow compressor station.

The newspaper says that with just a few weeks to go before the start of the heating season, storage sites are less than 72% filled, the lowest level for this time of year in more than a decade.

The Pound-to-Euro exchange rate fell to two-week lows at 1.1630 while the Pound-to-Dollar exchange rate fell to a one-month low at 1.3640.

For investors the is difficulty in interpreting what the surge in gas prices presents the Pound: one the one hand it implies higher-for-longer inflation, which should affirm market expectations for an early-2022 interest rate hike.

These rate hike expectation has provided support to Sterling over recent weeks.

But on the other hand higher gas prices pose a significant headwind to consumer spending as well as industrial production, all of which argues for an interest rate rise at the Bank of England to be kicked into the distance.

Such a reappraisal by markets would weigh on the Pound.

Indeed, the market is currently betting on the latter, expecting sufficient economic headwinds to push the Bank into a delay.

The gas crisis comes just days before the Bank of England’s September policy meeting scheduled for Thursday, where any warnings over the outlook for UK economic growth could be interpreted as a ‘dovish’ signal for Pound Sterling.

“The pound could be weighed down as we expect the BoE (Thursday) outcome to lean against market pricing,” says Eimear Daly, an analyst at Barclays.

“BoE inaction and no fiscal tailwinds limit GBP upside, but we remain constructive medium term given GBP undervaluation,” adds Daly.

The UK economy is currently facing significant supply challenges, as is much of the global economy, but the supply of energy is now looking to be the most acute.

We reported last week that an energy crisis was looming in the UK given the severe gas supply constraints in Europe, the UK’s main source of imported gas.

Tightening gas supply has meanwhile been exacerbated by a protracted period of settled weather in the UK which has left the country’s wind farms contributing as little as 3.0% to the country’s overall electricity output.

“We retain our caution on GBP given the headwinds to growth from supply constraints, withdrawal of government support schemes and higher taxation. The market is already priced for two rate hikes in 2022 so the risk is that data ends up making ‘tightening too frightening’ as our economists like to say,” says Daragh Maher, Head of Research, Americas, at HSBC.

HSBC say a run of economic activity disappointments from the UK have been reflected by their economic activity surprise index, which has turned sharply lower lately.

“Growth momentum is not simply faltering, it is slowing more acutely than expected,” says Maher.

Further growth disappointments become more likely given the energy market crunch.

The Pound’s domestic woes are meanwhile exacerbated by an ongoing drawdown in global equity markets as cautious investors opt to liquidate exposure to high risk assets, instead opting for safer plays.

The British Pound tends to fall in value against the Dollar, Euro, Franc and Yen during times of substantive stock market declines, a function of investor demand for safe haven assets.

To highlight this dynamics it must be recalled that the lowest values reached in the Pound-Euro exchange rate were not during bouts of peak Brexit uncertainty, but instead during the stock market sell-offs witnessed in 2008 (global financial crisis) and 2020 (Covid crisis selloff).

Global stock markets and commodities fell at the start of the week while ‘safe haven’ currencies found demand after China’s Evergrande Group was seen heading for default, with little indication Chinese authorities would provide a lifeline.

The mega developer has two interest payments due to bondholders on Thursday, one for $83.5MN and one for CNY 232MN.

“China risks abound with eyes on the Evergrande contagion. Markets also have one eye on inflation and the Fed meeting this week, plus the German election coming on Sunday. Many people – most investors seemingly – have been eyeing a correction in Sep/Oct after such a solid ramp this year and they’re getting one,” says Neil Wilson, Chief Market Analyst at Markets.com.

Investors are fretting that a collapse at Evergrande would have negative effects for other Chinese and global stocks, as well as Chinese economic growth more generally.

The crisis is just the latest setback to Chinese economic growth that has routes in a wider crackdown by authorities on technology stocks and the introduction of Covid-19 restrictions in some key regions and cities.

“Sterling is facing twin headwinds from the rush to safety in the greenback and sliding global stocks that weigh on risk appetite and squeeze the UK currency,” says Joe Manimbo, Senior Market Analyst at Western Union.

How much further Sterling declines therefore could rest with how soon global investors refund their confidence.

“If you have the Fed post max-accommodation – that is, on a path to tightening not loosening, inflation sticking around much more than optimists had thought, earnings growth stalling, and the economy past peak growth, you have the kind of perfect powder keg for a pullback and Evergrande may be the spark to set it off,” says Wilson.

“Add to that a German election and an energy crisis in Europe and it is not the ideal backdrop for risk,” he says.

One market analyst we follow says global markets are likely to remain under pressure over coming days, which spells for further weakness into the Bank of England’s Thursday event, if correct.

“Given the strength of this move to the downside it looks like we have at least a couple days more of selling to go before any kind of counter-wave develops,” says Chris Beauchamp, Chief Market Analyst at IG.

Written by Gary Howes

Source: PSL

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Pound Sterling Losing Shine against the Euro, a Sell Against Dollar says Nomura

“Is GBP losing its shine?” queries Jordan Rochester, Global FX Strategist for Nomura in a new research note on the UK currency that comes as we move into the new month.

“We argue yes,” is his the answer.

Rochester joins other economists in noting the UK economy’s growth rebound to have slowed over recent months and says this dents the bullish stance his team have held on Pound Sterling during much of 2021, particularly against the Euro.

“There are problems popping up ahead in the UK’s macro outlook,” he says.

The list of concerns on the outlook cited by the Nomura analyst includes slowing credit card spending, sideways mobility data, falling data surprises and rising COVID-19 cases amongst the elderly.

The call comes in the same week that IHS Markit’s PMI report for August showed a sharp slowdown in private sector activity in the UK, amidst persistently strong costs facing businesses and staff supply shortages.

The list of headwinds is therefore a long one.

“Data surprises for the UK are falling in a big way and it matters,” says Rochester.

The British Pound rose sharply in the first three months of the year as the hard-hit UK economy exited its winter lockdown.

But the Pound’s gains have since stalled with the Pound-to-Euro exchange rate trending sideways in a loose range below 1.18 but above 1.16. Against the Dollar the recent trend has been lower, with the Pound-to-Dollar exchange rate peaking at 1.42 in June and falling back towards the 1.36 support region.

Nomura are now ‘short’ the Pound against the Dollar in anticipation of a weaker Pound.

But there are however some recent signs that UK consumer sentiment has improved of late, which could yet keep the Pound supported.

Consumer activity has picked up again during August as the UK’s Covid rates pulled back from June highs and settled into an unremarkable trend.

Of note this week was the CBI Distributive Trades survey which showed the retail sector was experiencing a decent rebound in activity in August following a slump in July.

The CBI reported a large jump in the reported sales balance to a six-and-a-half year which will undo a portion of July’s 2.5% month-to-month decline in the official ONS retail sales data.

“With the recent distributive trades survey data suggesting the UK recovery narrative, driven by the consumer, remains in play we remain biased towards looking for EUR/GBP to trade lower,” says Jeremy Stretch, Head of FX Strategy at CIBC Capital Markets.

Pound Sterling Live reported last week that the British Pound could retain support amidst expectations that the recent slowdown in UK economic growth will give way to a stronger late Summer expansion.

A new near-term survey of UK business activity out last week showed that 60% of businesses in the leisure and hospitality sector were projecting a surge in revenue over the August Bank Holiday weekend, with 13% preparing for the busiest Bank Holiday in a decade.

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According to the Barclaycard Payments SME Barometer, confidence among small and medium sized businesses is returning to pre-pandemic levels, with 40% planning to hire additional staff over the next 12 months.

Confidence returned amidst unremarkable Covid-19 case trends and the ending of the restrictive test and trace policy in the middle of August.

How this confidence can sustain itself heading into the Autumn will matter greatly for the Pound’s outlook.

Above: If the UK’s data can start surprising positively, the GBP could be better supported. Image courtesy of Nomura.

Inflation is expected to pick up sharply and approach the Bank of England’s projected 4.0% level which will prove a headwind for consumers, while Covid cases are likely to spike once England’s schools return, as they did in Scotland.

For now expectations are that the bar is set high for the reimposition of Covid restrictions, but the pandemic has had a tendency of throwing up ugly surprises.

“The UK’s COVID-19 situation is not as good as it could be,” says Rochester. “Vaccines have made a big difference, the UK’s restrictions are much more relaxed than they were, but case data are still rising and, most importantly, rising among highly vaccinated, older age groups”.

“We are approaching Autumn with schools set to return (expect a spike in cases from next week), and there are eight times more hospitalisations now compared to a year ago. Vaccine passports, new restrictions and overall lower mobility might be the path ahead. Hopefully that is not the case, but it remains a risk for some time to come,” says Rochester.

When it comes to exchange rates it is critical to remember that relativity is key: the UK economy might be slowing, but there are also signs the same factors impacting the economy are also impacting other countries and regions.

One only needs to look at the rapid economic slowdown in the Asian and Pacific region as countries feel the strain of the Delta variant.

The U.S. is also witnessing a rapid slowdown in activity with the previous week’s PMI survey for August showing private sector expansion slowed sharply in August amidst capacity constraints and Delta variant spread.

Ultimately for exchange rates, how the relative developments impact central bank policy matters.

If the Bank of England sticks with its path towards a 2022 interest rate rise the Pound could remain supported, particularly against the Euro which is burdened by the European Central Bank which is in no mood to even contemplate a rate rise.

The Bank of England will likely raise rates ahead of the ECB courtesy of the UK’s hot inflation levels which they anticipate will reach 4.0% by the time 2021 is done.

How that inflation behaves over the duration of 2022 will be key for the Pound’s longer-term outlook in that expectations for a number of rate rises at the Bank will surely increase if inflation remains stubbornly high.

Higher interest rate expectations reflect in higher yields paid on UK bonds, which tends to translate into support for the Pound.

“We expect UK CPI to double from around 2% towards 4%. Such an increase would be hard for the BOE to ignore and is the main risk to holding short GBP exposure right now. Growth may be slowing, but inflation could cause more hawkish comments from the BOE into year-end,” says Rochester.

While Nomura are looking for Sterling weakness against the Dollar via their short GBP/USD recommendation, they are still fancying the Pound to retain support against the Euro.

Short EUR/GBP (a trade that looks for the Pound to rise against the Euro) still makes sense to Rochester given UK bond yields are likely to remain above Eurozone yields as a result of central bank policy divergence.

“This might be all that matters,” says Rochester.

“However, the problem is that it is a very slow moving trade that has been rangebound for quite some time now. EUR/GBP’s medium- to long-term path is clearly lower, in our view,” he adds.

Written by Gary Howes

Source: Pound Sterling Live

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Pound Sterling Heads for Biggest Weekly Drop against the Euro

The British Pound is on course to record its sharpest weekly decline against the Euro since September 2020, a time when the EU and UK faced a logjam in Brexit trade negotiations that lead markets to raise bets a ‘no deal’ outcome was increasingly likely.

The fall in Sterling in April 2021 however has no clear narrative behind it, although some analysts are pointing a tentative finger at the hiccup in the UK’s vaccination rollout stemming from the UK medical regulator’s decision to restrict the distribution of the country’s ‘workhorse’ AstraZeneca vaccine.

The Pound-to-Euro exchange rate declined by a third of a percent on Thursday to record a five-week low at 1.1540, having been as high as 1.1800 at the start of the week.

The weekly decline is now 1.80% at the time of writing.

Marshall Gittler at BDSwiss says blaming the regulator’s change of guidance on the AstraZeneca vaccine is unconvincing given that the most of the Eurozone’s largest countries have applied similar, if not more restrictive, conditions on the same vaccine.

If anything, news out of the UK on the vaccination front remains positive with official data showing the number of vaccinations delivered on Wednesday exceeded 500K once more, suggesting an Easter drop off is now in the rear-view mirror.

The prospects of the UK exiting restrictive lockdown conditions meanwhile looks all the more certain based on modelling from University College London (UCL), that shows Britain will pass the threshold for herd immunity on Monday 11 April.

If the modelling is correct a resurgence of covid-19 infections and hospitalisations is incredibly remote and businesses and consumers alike can continue investing in a post-covid future, thereby driving a strong economic rebound.

“I think one of the main reasons GBP is falling could be just positioning and trend-following,” says Gittler, “I’m skeptical about this setback”.

“The GBP correction is symptomatic of a market that had become overly positioned at bad levels after a long trend move, positioning finally peaked as many cited the past strong April seasonals… GBP will ultimately regain its poise and drift higher,” says Jonathan Pierce, a trader at Credit Suisse.

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While the Pound went lower by a third of a percent against the Euro on Thursday it is notable that the currency was steady against the Dollar, this was reflected in an Euro-to-Dollar exchange rate that was a third of a percent higher at 1.19.

This suggests the most recent decline in GBP/EUR is more a function of Euro strength than a reboot of the mid-week Sterling weakness.

The rally in the Euro exchange rate complex comes as the EU sees a sharp increase in vaccination rates suggesting the area’s woes concerning vaccinations is coming to an end.

Numerous EU countries, including Germany, recorded a fresh daily record on Wednesday, signalling to markets that a strong vaccine-induced rebound lies ahead.

Pound sterling was a beneficiary through January, February and March of the UK’s rapid vaccine rollout, which contrasted most strikingly with a tepid rollout in the EU.

Signs that this differential with Europe is now closing is therefore offering the Euro fresh support at Sterling’s expense.

We reported on Thursday that research from Citi and Goldman Sachs shows that the Euro stands to benefit as the EU vaccination accelerates in April, allowing foreign exchange markets to focus on a strong Eurozone recovery in the second half of the year.

“We think markets priced much negative Covid news, says Ebrahim Rahbari, Chief G10 Currency Strategist at Citi.

Analysts at NatWest Markets tell clients the second quarter should see significantly higher vaccine supplies from existing producers which include AstraZeneca, Moderna and Pfizer who should together deliver almost three times the amount of doses in the second quarter compared to the first quarter.

This is even after accounting for lower than planned AstraZeneca supply in the second quarter.

“Added to this, Johnson & Johnson vaccinations should begin, with supply reportedly being delivered to European countries from mid-April – this adds an additional 55 million doses to the Q2 total,” says Imogen Bachra, European Rates Strategist at NatWest Markets.

The European Commission now looks on target to vaccinate a minimum 70% of the entire adult population by the end of the summer.

“If we look at the Euro area more broadly, the health situation looks better than the public debate might suggest. Despite the further twists and turns in the AstraZeneca saga, the overall pace of vaccinations is finally starting to surge,” says economist Jan Hatzius at Goldman Sachs.

EU countries are nevertheless grappling with a third wave of covid-19 infections that has prompted the extension of lockdowns in Italy, a fresh lockdown in France and calls by Germany’s Chancellor Angela Merkel for Germany to do the same.

But Goldman Sachs tell clients the virus numbers themselves are not as bad as widely believed, with both positivity rates and fatalities fairly stable despite selective reopening and generally stronger-than-expected economic data.

“Our FX strategists think the end of the recent Euro selloff is near and see a significant appreciation over the next year,” he adds.

Goldman Sachs say it is easy to imagine Europe outperforming their baseline forecasts if Germany and other manufacturing-dependent economies continue to benefit from a strong global industrial rebound, while an earlier-than-expected vaccination breakthrough rescues the Southern European tourist season.

Source: PSL

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