The UK’s ability to stick to its intended path out of the most recent lockdown has provided GBP with support. Had the UK missed those dates set forward in the roadmap out of the pandemic, Sterling crosses would be unlikely to be where they are today. The government’s ability to stick to its roadmap was driven by low rates of infection, hospitalisation and a strong vaccination programme – all of which the fx market finds desirable in and of themselves, aside from the economic boost that opening an economy brings. But this latest and arguably biggest step of the roadmap out of lockdown and Covid restrictions sits less than three weeks away. If the UK fails to meet the June 21st line in the sand for a further liberalisation of its social restrictions markets could panic about the UK’s battle with its own epidemic and the uncertainty surrounding the path of economic and social normalisation could deter demand from GBP markets.
At the same time as the UK is becoming increasingly wary about realising it’s own expectations for unwinding the latest lockdown, it is now being reported that other geographies are starting to define their own end game. Notably within the European Union, the cocktail of its vaccine catch-up game and extended lockdown measures are reportedly gaining traction against the virus and positioning their economies for a timely exit from the economic hardships of the pandemic. At the Union level, it has been reported by the Guardian that in July the EU expects to suspend all quarantine restrictions for vaccinated individuals wanting to travel within its member states. This will be a welcome change for core and peripheral members of the Union who enjoy the revenues of a healthy share of the travel industry.
At the member state level, it has been reported that German Chancellor Angela Merkel is not seeking to extend the expiration date of its lockdown law book. In order to impose and legislate the social and economic restrictions we have witnessed across the globe since March last year, governments had to create an extraordinary set of rules. Responsible governments time-limited the life cycle of such extraordinary social powers. Angela Merkel’s indication that such rules are likely no longer necessary in Germany in July will create hope in Euro markets for a long and durable exit from the pandemic. As Europe and the US square up to a world post-Covid, meeting the June 21st deadline in the UK will be imperative for continued GBP strength.
Discussion and Analysis by Charles Porter