ÜOver 17.5 million Brits have already received the first dose of a corona vaccination. That is more than a quarter of the total population. And even in the age group 70 to 74 it was 92 percent turn. In this country, this cohort has to wait for weeks, a total of only five percent of the population has been vaccinated.
This vaccination success of Great Britain is now also evident in the currency market. The value of the British pound has been climbing incessantly for weeks. There is optimism among investors that the country will come out of lockdown sooner and faster than the countries of the EU. But over all of this hangs a sword of Damocles: the effects of Brexit.
On December 2nd, Great Britain was the first western country to approve a corona vaccine, the vaccine developed by Biontech in Germany. Since then, the rate of the pound has increased from around 1.10 euros to 1.15 euros – that’s a pretty rapid development on the foreign exchange market. Against the US currency, the pound even surpassed the $ 1.40 mark for the first time since March 2018.
Great Britain wants to end corona measures at the end of June
“The rapid progress of the British vaccination campaign continues to give the currency a boost,” says Sonja Marten, foreign exchange analyst at DZ Bank, “especially now that more and more experts are classifying the long delay in the second vaccination dose as uncritical.” This is no longer the case in Great Britain given after three weeks, but much later. This means that even more people can be vaccinated with at least a first dose. In this country, those responsible continue to reject such an approach.
“Great Britain should therefore achieve herd immunity status much faster and thus return to a more or less normal economic, social and cultural life than many other countries,” says Adolf Rosenstock, economic advisor at MainSky Asset Management. “This is one of the reasons why we assume that Great Britain will experience a strong cyclical upswing in the coming months – and therefore important months earlier than the European Union.”
In fact, Prime Minister Boris Johnson announced on Monday that all corona restrictions would be lifted by the end of June – in Germany, all people should not be offered vaccinations until the end of September. The effect of the British vaccination success can already be seen in the leading indicators. The purchasing managers’ index of the service sector on the island recently made a strong jump from 39.5 to 49.7 points. “The retailers are likely to look jealously across the English Channel,” says Thomas Gitzel, chief economist at VP Bank. Because in this country the mood clouded over again in view of the ongoing lockdown.
“The market is currently ignoring the risks”
“Great Britain is again attractive for investors”, is how Adolf Rosenstock sums up the situation. And that can also be seen in the stock market, which has ended its long period of underperformance. Because the FTSE 100 has always lagged behind most other stock market barometers over the past few months. In particular, smaller British listed companies, so-called small caps, have now been able to catch up significantly in recent weeks.
American investors in particular have recently invested money again in Great Britain, as data from Bank of America show. European and Asian investors, on the other hand, are much more cautious. But even with these, the mood is brightening, as a survey by the institute among fund managers showed.
The crucial question, however, is whether this will continue. And there are definitely doubts about this. “The market is currently preferring to ignore the fundamental risks that the UK is facing in the coming months,” says DZ Bank expert Sonja Marten.
“EU is clearly on the longer lever”
One of these risks is the consequences of Brexit. According to calculations by the credit insurer Euler Hermes, the country’s exporters will therefore suffer between 12 and 25 billion pounds (13.5 to 27.3 billion euros) in sales this year. For the entire EU, Euler Hermes expects export losses of less than ten billion euros, of which Germany will be hardest hit with two billion.
However, the UK service sector is even more affected, and the financial sector in particular. In recent years, she has ensured that the British foreign trade deficit with the EU does not get completely out of hand. But now there is a risk of a setback.
Because British financial service providers lost the so-called EU passport with Brexit. Now they only get access to the EU market if their services are recognized as equivalent in the respective market segments. Whether and to what extent this will still happen is currently completely open.
“At this point, the EU clearly has the upper hand,” says Christian Apelt, foreign exchange expert at Landesbank Hessen-Thüringen. He therefore expects Brexit to have a long-term negative impact on the country’s economic development.
Sonja Marten sees it similarly, and therefore warns that there is too much optimism for the pound. Sooner or later disillusionment will follow. “A return to the fundamental realities should weigh heavily on the pound again in the coming months,” she says. However, it could take a while before this trend reversal occurs. For now, the financial market is still celebrating vaccination success.