9 February 2021
The US dollar was on the back foot against most other major currencies on Monday, falling to multi-month lows versus sterling and its lowest level against the euro since the beginning of the month.Investors have begun focusing again on Joe Biden’s proposed fiscal stimulus programme, which on Friday was endorsed by the US Senate. This takes the $1.9 billion programme one step closer to being approved, with Biden hopeful that it will be signed off by mid-March. Friday’s slightly underwhelming US jobs reports has also kept downward pressure on the greenback so far this week. While the headline number was in line with expectations, the sharp downward revision to December’s employment change number has raised some concerns over the state of the US economy.For now, the market is starting to look past the sluggish progress being made towards vaccinations in Europe, which we think has been one of the main reasons for the currency’s recent sell-off. The virus situation is undoubtedly improving across the developed world, which is perhaps providing investors with additional reason to sell the safe-havens and flock to risky assets. New cases of the virus have fallen sharply in the US to early-November lows. Signs of an easing in infection in Europe, notably in Germany, is also encouraging, although there appears some way to go before we see any meaningful easing in restrictions there given the bloc’s modest vaccination progress. This, we think, could keep a lid on gains for the euro in the near-term.
Sterling powers to April 2018 highs on vaccine optimism
The pound has continued to find gains easier to come by than every other G10 currency so far in 2021, rising to its strongest position since April 2018 versus the dollar this morning. As we have noted in the past few weeks, the UK’s impressive vaccine progress has been behind much of the currency’s move higher so far this year. Britain has now administered almost 20 vaccine doses per 100 people since inoculations began in early-December, five times as many as the EU average. We calculate that at the current pace, approximately 60% of the adult population could have received at least one vaccine dose by the end of April, assuming the second round of vaccinations commence in earnest in early-April. There is now a real prospect that PM Johnson could outline a roadmap for a faster-than-expected unwinding in measures when he addresses the nation on 22nd February. We think that anticipation of such an announcement is likely to keep sterling well bid in the meantime, particularly versus the euro.
