Pound faltering as jab euphoria ebbs

LONDON: Pound bulls betting on the superior vaccine rollout in the UK are getting cold feet, threatening one of the hottest currency trades of the year.

The euro recorded its biggest jump against sterling in 2021 last Tuesday, and extended gains above 86 pence the following day. Traders have been selling the pound on concerns relating to AstraZeneca vaccines — on which the UK is heavily dependent — while the euro has been buoyed by projections that the bloc will hit immunisation targets earlier than expected.

The shift comes after months of the UK currency outpacing that of its nearest neighbour, racking up multi-year records as traders bet Britain’s rapid inoculation programme would leave the European Union in the dust.

Now, investors risk getting left on the wrong side of the trade, with leveraged funds’ long sterling bets close to a 12-month high, according to the Commodity Futures Trading Commission.

“We are observing a reversal of the vaccination euphoria,” said Petr Krpata, a strategist at ING Groep. “It is also exaggerated by speculative positioning.”

After Brexit trade discussions were sealed at the end of last year, the focus for pound traders pivoted to the UK vaccine rollout, which quickly established a big lead over the EU.

Britain has given around three times as many doses as a proportion of its population compared to the EU, with the bloc’s effort being curtailed by disputes and delays.

But the UK campaign is hitting snags, including a shortage of doses forApril, meaning that older people waiting for second doses will be prioritised over younger people getting their first shot. And UK medical regulators advised that under-30s should not receive AstraZeneca. The pound subsequently fell as shorts in the euro-sterling pair were unwound.

“It looks like many positives are in the price of the pound by now and the currency is looking overvalued and overbought, especially versus the euro,” said Valentin Marinov, head of G10 currency research at Credit Agricole in London.

April is historically a good month for the pound, driven in part by the new UK tax year and corporate dividend repatriation of overseas income, but that might not be the case this year.

“We are now very much at the stage where a lot of the good news on the vaccine front is now priced in,” said Ned Rumpeltin, chief European forex strategist at Toronto-Dominion Bank.