The British Pound dropped, losing all the recent gains after global stock markets fell. Analysts, however, hope that the vaccine rollout will help offer some support, thus limiting the pound’s losses.
As mentioned in our previous article on the pound, the British currency is influenced by wider market trends and sentiment, which has recently become more obvious, once the Brexit negotiations were completed. This is going to become the default scenario in 2021, which will see the pound rising against major currencies when markets are going up, and, on the other hand, see it falling when global markets are underperforming.
On Wednesday, the pound reversed its gains after global markets fell and investor “risk off” sentiment drove equity and commodity markets to fall, and the dollar to strengthen. There was no obvious reason behind the decline and analysts believe that a fall in stock markets is expected, as more traders close their trades. In a report from Reuters, it was noted that traders were making leveraged trades taking profits to cover losses from other trades, leading to significant falls in overcrowded trades. Additionally, increased trading volume in certain sectors of the market created volatility.
Slow vaccine rollout disappoints
Markets appear to have been too optimistic about a quick economic recovery based on the prospect of vaccinating billions of people. According to CNBC, “a sluggish rollout of the Covid vaccines threatens Wall Street’s rosy outlook.” In the UK, the pharmaceutical giant AstraZeneca continued on Thursday its dispute with the European Commission, after telling the bloc last week there would be a 60% shortfall in supplies due to production problems. The dispute could trigger a UK-EU trade war amid frustration at the speed of the vaccine rollout in Europe.
In an interview with Euronews, German MEP Peter Liese said that it was unfair the way European citizens were treated by the UK pharmaceutical company:
"For five weeks now the BioNTech vaccine that is only produced in Europe, that has been developed with the aid of the German state and European Union money, is shipped to the United Kingdom. So people in the United Kingdom are vaccinated with a very good vaccine that is produced in Europe, supported by European money. If there is anyone thinking that European citizens would accept that we give this high-quality vaccine to the UK and would accept to be treated as second class by UK based company. I think the only consequence can be to immediately stop the export of the BioNTech vaccine and then we are in the middle of a trade war. So, the company and the UK better think twice.
In relation to the demand for more vaccines, Barbara Rockefeller of Rockefeller Treasury Services Inc. noted that “We were all so enamoured of the blazingly fast development of vaccines that we neglected to consider production bottlenecks—and were misled by company and government announcements alike that the stuff could be produced on demand. It seems we really do have a global shortage of vaccines that will persist for many months.”
If the vaccine rollout continues smoothly and more vaccines become widely available, then the pound will rally. However, the lack of vaccines and a possible trade war between the UK and the EU could threaten the British currency.
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