Vaccination Doubts Impact Sterling’s Strength

In a change to recent trends, the last week has not been a good one for the Pound. We have seen significant losses across the board and most notably of around 2-3 cents against both the Euro and the US Dollar.  Currency Index give their monthly update on the currency markets.

Written exclusively for Expat Network by Tom Arnold of Currency Index

This weakness for Sterling has been largely a result of growing uncertainty over the UK’s, previously very successful, Covid-19 vaccination programme. Up until a few days ago the UK was leading the way with its vaccinations. But news that the AstraZeneca vaccine is being investigated for supposedly causing a rare form of blood clots in a small number of cases, has rocked the UK authorities, with momentum now dropping. The AstraZeneca vaccine is still very successful and the number of cases of the blood clots is incredibly low, but with limited testing possible on these new vaccines due to the need to curb the pandemic, any such side-affects, particularly with a number of fatalities involved, clearly must be investigated.

While supply of the various vaccines still seems plentiful in the UK and with a huge number of people already vaccinated, and with the AstraZeneca vaccine still in use for most age groups, things are still on track for the UK economy to unlock, which is what has powered Sterling’s recent strength. But the Pound’s position is clearly very vulnerable to uncertainty, and we can expect to see further volatility as this situation unfolds. Many other country’s vaccination programmes are improving and so the UK’s, and hence Sterling’s lead, seems to be narrowing, hence the drop in Sterling strength.

Additionally, the rioting in Northern Ireland over the last few days, has led to rising concerns about the Brexit-effect. Brexit has been off the front pages for some time now, but has come hurtling back to the fore, with the events in NI. Could we be seeing a return to the troubles? There was always going to be some fallout from the Northern Ireland protocol, and any return to the uncertainty of violence in NI, is obviously also negative for the Pound.

In the US, the Federal Reserve’s stimulus mechanisms, which have seen significant amounts of Dollars injected into the markets, have caused some Dollar strength allowing the Dollar to make gains of around 3 cents against Sterling and 2 cents against the Euro. This is generally a weakening factor for a currency, as the more that is printed, the more the currency’s value is diluted. But in this instance, it is leading to inflationary concerns, and a mechanism to control or lower inflation is to raise interest rates, which in itself is a currency positive mechanism. At the moment, with interest rates so low, there would seem to be room to raise rates, and with the Fed holding steady to their plan of injecting more liquidity, the Dollar has been able to make gains.

So, some notable movement for both Sterling and the US Dollar, but a weak of continued pressure for the Euro, with the bloc as a whole still struggling to get on top of their vaccine rollout, together with various new lockdowns in some of the major countries.