Pound Trades Near 2-Yr High Against Dollar on Covid-19 Vaccine Induced Optimism

January 27, 2021
Pound Trades Near 2-Yr High Against Dollar on Covid-19 Vaccine Induced Optimism January 27, 2021 Lennox Hamilton

The British pound is witnessing revived buying interest as multiple analysts point to the country’s vaccine launch as the primary reason for the demand. At the time of writing this article, the pound to dollar exchange rate has rebounded to 1.3740 and is trading near 2-year highs.

The short term view of the pound is broadly bullish as per data provided by the Commodity Futures Trading Commission (CFTC). The number of open contracts created hoping for the pound’s rally (long positions) has now surpassed the number of contracts speculating a decline (short positions).

The latest Commitment of Traders (CoT) report, which is a detailed document reflecting the views of traders, indicate that market currently has an overall long position on the pound, with the total position now worth nearly $1.1 billion following a week-on-week rise of $62 million.

Commenting on the CoT data, Jane Foley, Senior FX Strategist at Rabobank said “Traders continue to pile into the Pound. Net GBP long positions built on the previous week’s surge.”

She further opined that bullish traders are hoping that the comparatively quicker vaccine roll-out will have an impact on the likelihood of a negative bank rate and aid the UK’s economic rebound.

As of January 26, 6.8 million doses of vaccine were delivered by the UK, implying that nearly 10% of the population was vaccinated. At this rate, as planned, the country’s lawmakers anticipate that most of the vulnerable groups would have received a dose by the middle of February.

Economics and currency strategies consider the speed of roll out in comparison to other countries as the essence for rebound in economic activity and strengthening of currency this year. This metric places the country and the pound in a robust position.

Notably, several EU states face considerable issues in vaccinating their citizens implying that there is little possibility of achieving vaccine-induced herd immunity this year.

Rough estimates indicate that Germany might achieve herd immunity only in 2024 and France in 2023 at prevailing rates, even though the rate is anticipated to expedite as vaccines are made available online.

Interestingly, the bloc could receive much anticipated good news in the form of AstraZeneca vaccine receiving approval, although postponement in the company’s delivery schedule have been worrying the EU member states.

Currently the EUhas vaccinated two out of hundred people while Britain has vaccinated over 10 out of hundred people. Pascal Soriot, CEO of AstraZeneca estimates that the UK would have likely vaccinated 50% of its population by March.

Pascal Soriot stated “Boris Johnson has a goal to vaccinate 15 million people by mid-February, and they’re already at 6.5 million. So they will get there.”

In addition to the impressive rate of vaccination, the Pound is also supported by attractive valuation and hopes of a solid rebound of the economy. The only worry that impedes the pound’s uptrend is that the economy could record another contraction due to the national lockdown and that will encourage the bank of England to slash interest rates sometime this year.

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