Brexit issues and new Covid mutations create panic among investors, which has weakened the British pound, though covid-19 vaccine rollout is good.
The covid-19 vaccine program has been very effective in the United Kingdom.
Brexit issues continue to hit Britain even after three months have passed.
British Pound Weakens
The Pound Sterling was unable to rally past 1.3900 levels and moved lower to close at 1.3708 last week. If the GBP/USD currency pair continues the down move, it will fall up to the 1.3685 area, which is expected to provide strong support.
The GBP/USD currency pair closed at a crucial support area at the 1.3710 level and has to take a decisive direction to move on either side. The British pound is at a two-month low, though the covid-19 rollout has been speedy.
UK Vaccination Rollout Stalls
UK vaccination rollout has been successful, and the number of cases is decreasing, while the euro region has not been very successful to combat the covid-19 infection.
After the Brexit trade deal was finalized last year, the vaccine rollout has gained top priority. The vaccine campaign has been successful, but new snags have affected the vaccination process.
Prime Minister Johnson has planned to reopen the economy soon. He has made great efforts to bring the covid-19 vaccination program to the people at a faster rate.
Herd immunity in the United Kingdom threshold may be reached in a week, reports the University College London. Herd immunity may bring down the number of covid-19 cases in the country soon, say experts.
Vaccine supplies have dried out, and there is hesitancy about taking the Covid-19 vaccine, as complaints about blood clots are keeping people away from taking the jab.
Brexit Marks 100 Days
It’s been 100 days since the Brexit deal was finalized, but tensions at home are increasing. All industrial sectors have been negatively affected by the impact of Brexit. Import and export are affected as trade between the UK and EU is disrupted. Increasing costs, delayed shipment, and red-tapism are the main issues felt in the UK and the EU, disturbing the balance of trade.
Export from the UK to China has dropped sharply after Brexit, while German trade has improved. Germany is the biggest trading partner of the United Kingdom. Germany’s trade with China has increased after Brexit. Exports from Germany to China have increased in February. Germany’s export to the UK has fallen by 12.2% year-on-year in February. Imports have fallen 26.9%, according to the Federal Statistics Office in Germany.
Fast Expansion in the Economy but Weak British Pound
The under performance in the sterling comes despite strong UK data.
Construction PMI data for March is at 61.7, while it was 54.6 in February. The construction industry has done well to hit a six-year high last month. The HIS Markit purchasing manager’s index was at 61.7 in March, a big surge from the February data at 53.3. It is the highest reading since September 2014.
The IHS Markit/CIPS services PMI was lower at 56.3 in March, while the estimated data was 56.8. RICS Monthly House Price Balance, which shows the house price increase in their area, was at 52%, while it was 54% previously.
There has been speculation about a negative rate cut. Bank of England has stressed that there were no plans to deploy such a measure immediately. But, there are developments taking place in the economy, which has investors expecting a hike in rates.
Prince Philip, the Duke of Edinburgh, Dies at 99
Gun salute to mark the death of Prince Philip, the Duke of Edinburgh, was fired from the Tower of London. PM Boris Johnson said that the Duke had inspired the lives of countless young people. Nicholas Witchell from BBC has commented that Prince Philip had made a big contribution to the successful reign of the Queen.
Effects of the British Pound on Other Currencies
US Dollar Index
The Fed Chairman Jerome Powell stated on Thursday that there should be actual progress in economic activity before policy tightening is brought in. He also said that inflation is in a transitory phase and may come down by the end of the year. Powell says that he is more concerned over the rising covid-19 cases than over inflation.
Investors expect the Fed to raise rates soon. The greenback is in a recovery mode along with bond yields.
The British pound to the Japanese yen is at the psychological support level at 150.30. It has strong support at the 148 levels too. The pound sterling has to resume its upward momentum from one of these levels to continue its positive uptrend. The GBP/JPY currency pair will depend on the GBP/USD move to take a similar direction.
The British pound took a sharp downturn against the Euro last week. The weakening pound has caused the GBP/EUR currency pair to move lower from levels of 1.1800 to 1.1514 last week. Investor selling dragged the pound sterling to its worst weekly performance.
The ECB minutes of the March meeting have been dovish. Members have agreed to maintain the monetary policy, which is sufficient in the present scenario. ECB President Christine Lagarde has said that there is a negative impact of the pandemic on the economy. However, activity will pick up by the end of the year, says Lagarde.