Pound Rises as Vaccine Progress, Brexit Optimism Bolster Outlook By Bloomberg


© Reuters. Pound Rises as Vaccine Progress, Brexit Optimism Bolster Outlook

(Bloomberg) —

The pound rallied the most among major peers as signs the U.K. and European Union are close to agreeing a trade deal, and the latest progress in the development of a coronavirus vaccine added to optimism over the currency’s prospects.

rose as much as 0.8% to $1.3381, extending an advance that sent the currency to the highest level since early September. The climbed as much as 0.6% against the euro.

While results of a Covid-19 vaccine developed by the University of Oxford and AstraZeneca (NASDAQ:) Plc published Monday showed it was less effective than those by Pfizer Inc. (NYSE:) and Moderna (NASDAQ:) Inc., it has some advantages when it comes to distribution. Not only is it cheaper, but it can also be stored at refrigerator temperature.

Sterling has been one of the main beneficiaries of the growing optimism for a vaccine, which would boost the services-driven U.K. economy stifled by lockdowns. It’s also been spurred by hopes the U.K. and EU will sign a trade deal, and the Chancellor of the Exchequer Rishi Sunak’s pledge to shore up growth with further borrowing.

The U.K. is facing a “long list of potential positives,” said Jordan Rochester, a currency strategist at Nomura International Plc. Fresh fiscal stimulus, the news of Oxford’s vaccine trials “plus the potential for progress in Brexit talks should keep GBP-USD cross supported,” he said.

Officials from the U.K. and EU sounded upbeat about the prospect of trade deal, with face-to-face talks set to resume in London around the middle of this week. And Sunak will announce an increase in spending on infrastructure and public services on Wednesday.

Priced In

A Brexit deal is largely priced in to the pound, options show. With the market expecting an accord to materialize, a breakdown in talks would see a much larger move lower in the cash market than any rally off of news of a deal.

One-week risk reversals, a measure of sentiment, rallied to 73 basis points in favor of pound gains, a premium only seen twice since late September, before easing to 47 basis points.

“The market is currently pricing in a lot of good news for the pound, but we think it still may have some room to run,” said Ned Rumpeltin, head of FX strategy at TD Securities. “It looks a little early to start fading this move, especially as market liquidity will start to diminish ahead of the U.S. holiday later this week.”

©2020 Bloomberg L.P.

 

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