Pound hits 12-month high on holiday and vaccine passports optimism

Suban Abdulla
·3 min read
Passenger jet airplane taking off at sunset
The pound also faces some volatility ahead of the Bank of England interest rates announcement, which is due mid-day on Thursday. Photo: Getty

Sterling soared to a 12-month high against the euro as the prospects of COVID-19 vaccine passports and a post-lockdown holiday boom boost optimism in the travel industry and for travellers.

After a poor start to the week, which saw sterling fall 0.65% against euro (GBEUR=X) and 0.5% against the dollar (GBPUSD=X), it made up some ground against the euro, passing the 1.17 mark on Wednesday morning.

It comes after, British Airways (BA) said it will introduce digital global vaccine passports in time for the planned reopening of international travel from 17 May.

BA, owned by International Consolidated Airlines Group (IAG.L), will ask people who received their two doses of the COVID-19 vaccine to log their details with their BA app, to prove that they are save to fly.

Additionally, the British flag carrier's boss boss also called for unrestricted travel for those who have been vaccinated and for non-vaccinated people with a negative coronavirus test as the industry gears up for overseas travel to recommence.

WATCH: Greece is working on agreements with ten countries on vaccine passports

Ian Strafford-taylor, CEO at travel money specialist FairFX said: "Almost a year on from when the UK was plunged into lockdown and the travel industry stalled, the pound is rallying with the highest rates of the last 12 months and is currently up 10% against the euro compared with 23 March 2020" — the day the UK entered lockdown for the first time.

Strafford-taylor put the jump in the pound to the "positive news around vaccine passports and countries across Europe suggesting holidays are on the horizon", which he says has prompted "savvy holidaymakers" to look for deals to get "the most bang for their buck."

“If you’re planning a trip this summer, following the pound is the best way to make sure you get more for your money. As some travel operators will no doubt be hiking their prices up to make up for the financial losses of the last 12 months, holidaymakers will want to make savings wherever they can, and planning ahead is the best way to do that," he added.

Chart: Yahoo Finance
Chart: Yahoo Finance

Airlines and travel firms have seen a bump in demand since prime minister Boris Johnson proposed a four-step roadmap out of lockdown, last month.

Johnson said that a government taskforce will produce a report by 12 April which will recommend how international trips can resume for people in England.

This could lead to foreign holidays being allowed by 17 May at the earliest.

It is understood that BA will decide on using its larger jets on short-haul routes based on booking volumes when Johnson restarts international travel. Long-haul travel is not expected to restart as soon as short-haul.

READ MORE: BA considers using large jets for UK's post-lockdown holiday boom

The pound also faces some volatility ahead of the Bank of England interest rates announcement, which is due mid-day on Thursday.

BoE is a key driver for the currency and especially given the recent rise in government gilts, especially considering the amounts of money the UK government is borrowing to fund its coronavirus response.

UK's central bank is expected to keep its constructive forecast in place, as the vaccination programme picks up steam, with the pace poised to double in the coming weeks as more age groups get inoculated. This supports a positive economic outlook, especially after the UK slowly exits lockdown.

Experts at ING said that they "don’t expect" the BoE to "lean against the rising bond yields" next week.

"But with the market already pricing a close to one hike for 2022 and another one for 2023, the cautiously upbeat BoE message next week might be a modest positive for GBP, yet not a catalyst for some profound GBP gains."

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