27 January 2021
The UK hit a grim milestone of 100,000 COVID-related deaths on Tuesday, but currency traders continue to focus on the impressive progress the UK is making towards mass vaccinations.Sterling leapt back through the 1.37 mark versus the US dollar yesterday, while rallying to a fresh eight month high on the euro. Britain has now administered at least one dose of the Pfizer or AstraZeneca vaccine to around 10% of the population, including the vast majority of over 80s. By contrast, the European Union is lagging well behind, with both Pfizer and AstraZeneca saying that production problems means that they are unable to supply the expected quantity of vaccines to the common bloc. The EU is yet to approve the AstraZeneca jab, but it may only be a matter of days until it does. A report from Reuters has suggested that the quantity of the UK produced vaccine may be as much as 60% lower in the first quarter than the EU had initially agreed. This very gradual vaccine rollout in Europe relative to the US and UK is proving a bit of a stumbling block to euro strength, with the common currency stuck around the 1.21 against what has been a broadly weaker greenback in the past 24 hours. 
What to expect from tonight’s FOMC meeting
Focus in financial markets will quickly shift to this evening’s FOMC meeting. Investors don’t expect any big surprises from the bank today, with policy to remain unchanged and no major shift in rhetoric expected. Markets will likely be paying close attention to chair Powell’s comments on the current health of the US economy and the possibility of a tapering in asset purchases. Regarding the former, the recent worsening in labour market conditions and slowdown in consumer spending could cause Powell to adopt a slightly more dovish tone over the near-term outlook. We think that his message will, however, be laced with optimism given the ongoing vaccine rollout, albeit talk of a tapering in the bank’s quantitative easing programme is far too premature, in our view. Prior to this evening’s FOMC meeting, investors will have one eye on today’s US durable goods order data. There is no major data out of Europe today, so EUR/USD is likely to be driven largely by events in the US and shifts in broader market sentiment.
