COVID vaccination rollout sees Sterling zoom ahead of G10 peers in 2021
Ebury, one of Europe’s largest FinTechs specialising in FX risk management and the most accurate EUR/USD forecaster in Q4 2020 according to Bloomberg, finds that GBP has risen sharply compared its G10 peers as the UK’s impressive vaccination programme begins to drive down both cases and deaths.
Certainty over Brexit and the Bank of England’s reluctance to cut interest rates into negative territory have also factored into GBP’s strong performance in 2021, with the currency up almost 2% against the USD year-to-date.
The next two best performing currencies in the G10 so far this year are the Norwegian krone (up more than 1.5% vs USD) and the Canadian dollar (up almost 1%), with both currencies well supported by the recent sharp increase in global oil prices.
Emerging market currencies have largely underperformed so far this year, given that the vaccine roll-out is on course to take considerably longer in the developing world.
With investors now betting on a global economic recovery, risk assets have rallied and bond prices have fallen. This improvement in risk sentiment has also driven the safe-haven currencies lower, with the Swiss franc (CHF) and Japanese yen (JPY) both down approximately 5% against the dollar so far this year.
Meanwhile, rising US bond yields have triggered a stabilisation in the USD after its sell-off in 2020, with the currency up more than 2% against the euro so far in 2021.
Matthew Ryan, Senior Market Analyst at Ebury, commented during a webinar hosted by Ebury that vaccination programmes and their impact on the virus and major economies will likely remain the biggest driven for FX markets at least through the first half of 2021.
“There is very encouraging efficacy data on these various vaccines which bodes well for strong global economic growth over the coming months as countries who have been living under stringent lockdown restrictions will be able to ease these measures.
“As such, markets have greeted the international vaccination effort by favouring higher risk assets which are rallying at the expense of traditional safe havens. The sterling has also benefitted from the rapid rollout of the vaccine in the UK which has far outstripped its European peers.
“The greenback has generated solid momentum in 2021 so far off the back of a surge in bond yields. However, with the Fed continuing to purchase the vast majority of issuances, as has been the case since the outbreak of the pandemic, and committing to keeping interest rates low, we could see a historic dislocation between rising bond yields and a strengthening USD.”