Pound Reaches One-Month High Against the Euro
On Wednesday, Sterling hits its highest level against the euro in more than two months, as investors became optimistic that a COVID-19 vaccine would provide a lifeline to the fragile UK economy. They were also more hopeful about the possibility of a Brexit deal. This week, there was a surge in global markets due to an announcement made by Pfizer Inc. on Monday about clinical trials indicating that its experimental coronavirus vaccine is 90% effective in reducing infections. This benefitted the pound as investors believed that a possible vaccine could give the UK a boost, which has had its economy ravaged by the pandemic.
Analysts said that as the virus has hit Britain disproportionately, a vaccine will also help it disproportionately. Pound traders were concerned that the Bank of England could end up introducing negative rates in January because of the economic fallout from a second strict lockdown nationwide, along with the possibility of the European Union and Britain not agreeing to a post-Brexit trade deal. According to market analysts, a COVID-19 vaccine would be helpful in lifting the dark clouds that have been hanging over the UK economy since spring and it would also eliminate the possibility of negative rates being introduced by the Bank of England.
There was a 0.1% increase in the pound at 0850 GMT, as it reached $1.3291. This marked a 1% surge since Monday, which was its highest since September. As compared to the euro, it had gone up by 0.2% to reach 88.785 pence per euro, which was also its highest level since September. Analysts said that if a Brexit breakthrough were to happen and COVID-19 vaccine hopes can be sustained, then the euro-sterling could be heading towards 0.86. In January, Britain exited the European Union and both sides are in the midst of negotiations for a trade deal that will be followed once the transition period comes to an end on December 31st.
According to some analysts, the fact that Democrat Joe Biden won the U.S. presidential elections could support the possibility of a deal. Biden called the UK Prime Minister, Boris Johnson, on Tuesday, and stressed on the importance of protecting the peace deal of Northern Island during the Brexit process. However, analysts are also skeptical that they will be able to reach an agreement that would be close to the full access offered by the internal market because there is simply not enough time left to reach a deal.
They said that in such situation, the British economy would be forced to deal with the economic impact of the coronavirus, vaccine or no vaccine, and would also have to face the problems of trading being less easy and free than it is in the transition period. This certainly doesn’t seem to be a good thing for the Sterling in the long term and the currency could suffer from the after effects. Even if a vaccine is on the way, it will still take time for it to be available for the mass population, which makes the outlook uncertain for now.