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Sterling continues its run of strength
22 Jan 2021
Sterling continued its ascent against both the euro and dollar on Thursday benefitting from a variety of factors as sterling reached eight month highs against the euro and two and a half year highs against the dollar.
One of the leading causes for a stronger pound on Thursday were increasingly optimistic views on the UK’s Covid-19 vaccination programme with official data showing that the UK administered 363,508 vaccines in the last 24 hours, taking the total number of people vaccinated in the UK to close to five million. With the UK leading the US and EU member states in administering the vaccine, investors are anticipating a quicker return to pre-COVID normality and rebound in UK economic growth than those countries slower to administer the vaccine.
In addition to this, dampened expectations of the imminent use of negative interest by the Bank of England as soon as next month have also buoyed sterling this week. Bank of England Governor Andrew Bailey stated on Wednesday that he expects the UK economy to recover strongly as the country moves ahead with vaccinating its population against Covid-19 after calling negative rates “controversial” the week prior. Bailey’s comments follow comments from the chief economist for the bank, Andy Haldane, who said the economy could recover “at a rate of knots” from the second quarter. These comments are being interpreted by investors as a Bank of England in “wait and see mode” Andrew aren’t consistent with a bank ready to implement negative rates.
The European Central Bank voted unanimously to keep its monetary policy unchanged on Thursday, after a wave of new COVID restrictions in the European bloc were announced this week. Germany lead the way extending lockdown until the middle of February, with the Netherlands introducing a curfew from next week.
The ECB decision was widely anticipated by economists and hardly impacted the exchange rate as it was only last month that the ECB extended its Pandemic Emergency Purchase Programme to March 2022 totaling 1.85 trillion. The ECB did add its usual caveat that they stand ready to act if needed, but reiterated that for now interest rates would stay low until the inflation target is met.
07:00 – GBP – Retail sales (Mom) (Dec) – Expected: 1.2% Actual: 0.3%
07:00 – GBP – Retail sales (YoY) (Dec) – Expected: 4% Actual: 2.9%
08:30 – EUR – Markit Manufacturing PMI (Ger) (Jan) – Expected: 57.5 Actual 57
08:30 – EUR – Markit PMI Composite (Ger) (Jan) Expected: 50.3 Actual: 50.8
09:00 – EUR – Markit PMI Composite (Jan) Expected: 47.6 Actual: 47.5
09:30 – GBP – Markit services PMI (Jan) Expected: 45
19:45 – USD – President Biden speech
Strong Inflation data fuels sterling rally
21 Jan 2021
The pound performed well across the board yesterday after the release of better than expected inflation data for December. Cable broke two year highs before retreating and GBP/EUR similarly broke eight month highs. Biden taking office, and the inevitable stimulus package caused sterling to strengthen as investors looked for greater returns. This paired with the UK’s leading vaccination roll-out leads to an optimistic view on sterling in the coming months. Brexit worries have, for now, been pushed to the back of investors mind as the post-Brexit picture looks somewhat clearer.
As of yesterday, the UK has administered 5,070,365 doses of Covid vaccine, 346,922 new doses being administered in the 24hr period leading to Wednesday afternoon. Of the 5,070,365 doses, 4,609,740 people have received their first dose, with 460,625 of those having a second dose (fully vaccinated). The UK would need to continue to administer 350k doses a day to hit their mid-February target. This being said, UK Covid deaths are at a record high of 1820 being recorded yesterday.
Looking ahead, all eyes will be on the Bank of England as they weigh up interest rate decisions at their 4th February meeting.
Yesterday saw the inauguration of America’s 46th president as Joe Biden took the oval office. Shortly after taking office, Biden began signing a number of executive orders, most of which undoing policies put in place by his predecessor Trump. In total, he signed 15 orders, ranging from rejoining the Paris climate agreement, a mask mandate for federal employees on federal property, to finally stopping all funding for the construction of the border wall. Lastly with the Covid death toll passing 406,000, Biden put together a new team to coordinate the US Covid response.
We expect his next step will be to get the highly anticipated 1.9TRN stimulus package passed through congress. Whether the number will be 1.9TRN remains to be seen but we know a large aid package is coming for those Americans who have desperately needed the government’s help. In what seems to be a positive step in the right direction for America, Biden and Harris look to undo all of the divide and trouble caused by the Trump administration.
12:45 – EUR – ECB Interest Rate Decision
12:45 – EUR – ECB Deposit Rate Decision
13:30 – EUR – ECB Monetary Policy Statement and Press conference
Sterling strong as inflation numbers beat expectations
20 Jan 2021
The pound has started the day with a spring in its step as UK Inflation data beat expectations for December. The figure was expected to be an improvement from a previous 0.3% to 0.5% but the realized figure was an even more improved 0.6%. Britain’s inflation rate picked up during the month of December after shoppers, albeit briefly, were allowed back into stores between lockdowns.
This figure is still well below the Bank of England target, but crumbs of comfort can be taken from the figure beating expectations. The rising prices for clothing, transport, and cultural activities were the biggest reason behind the larger than expected rise, but this was partially offset by the falling cost of food and non-alcoholic drinks.
Former Fed Chair and the president's elects choice for Treasury Secretary Janet Yellen appeared before Congress yesterday and laid out the road of pandemic relief and economic stimulus. She urged lawmakers to “act big” when it comes to the national debt, but she already faced some stiff resistance from Republican lawmakers who wish to resist ‘liberal’ economic reform. This promise to act big has boosted the risk-on atmosphere and as a result, safe-haven demand has fallen.
17:00 – GBP- BOE Governor Bailey Speech
17:00 – USD – Presidential Inauguration
Vaccine Rollout Key to Quick Recovery
19 Jan 2021
Yesterday there was very little market news due to the US bank holiday Martin Luther King Day so the market was flat throughout the day. Boris Johnson told business leaders yesterday that efficient delivery of the coronavirus vaccine is Britain’s best economic recovery tool as he promised a sustainable fightback from the worst recession in 300 years.
The prime minister chaired the first meeting of a new business council designed to coordinate the government’s economic response to Covid-19 with leaders from the country’s biggest companies. Aiming to reassure business leaders that the government remained committed to kickstarting the economy as soon as possible. Johnson told the executives from 30 major firms – including GlaxoSmithKline, British Airways and HSBC – that the government was looking ahead to the economic recovery and the business landscape after Brexit.
Chancellor, Rishi Sunak, who also attended the meeting, told the leaders that effectively distributing the vaccine was the most important economic policy. Although no “big bang” removal of lockdown restrictions was expected, the chancellor suggested that vaccination would help to build a platform for a strong economic recovery in the second half of the year.
Today Janet Yellen’s is expected to endorse a market-driven exchange rate which could lead to investors seeing it as a green light for the U.S. currency’s long-term downtrend.
The U.S. Treasury Secretary-designate will affirm the U.S.’s commitment to a market-determined dollar value on Tuesday, as reported by Wall Street Journal. The comments could fuel speculation authorities will not object to a weaker USD, which earlier this month fell to a two-year low against a basket major currencies.
Investors are already doubling up on bets that stand to make profit if the currency weakens further, emboldened by an incoming Democratic administration that is prepared to unleash more fiscal stimulus to help the economy recover.
Hedge funds have also boosted their net short positions to the highest in nearly three years in the last week according to data from the Commodity Futures Trading Commission. Meanwhile, they raised bullish bets on the pound to the most since October, and are wagering on the euro and the Australian and New Zealand currencies to rise.
09:00 – EUR- ECB Bank Lending Survey
10:00 – EUR – ZEW Survey- Economic Sentiment; expected to decrease to 45.5 from previous 54.4
Vaccine rollout boosts Sterling
15 Jan 2021
Sterling traded close to recent highs on Thursday benefitting from news that the UK are leading Europe on rolling out its COVID-19 vaccination programme whilst expectations of an imminent interest rate cut from the Bank of England cooled.
Rate cut expectations gained traction in the early part of this month following the tightening of lockdown measures in the UK. Investors sold the pound as it was feared the Bank of England may delve into negative rate territory to help kick-start the UK economy. However, negative rate expectations were dampened this week following Governor Bailey’s comments that they were “controversial” and caused “lots of issues”.
Having administered three million vaccines up until now, currency markets are largely being driven by expectations of how quickly economies could return back to normal. With Brexit headwinds cleared, the UK announcing the introduction of mass-vaccination centres and leading the EU in its vaccination race, investors are expecting the UK economy to bounce back quicker than the EU. To show how far in front the UK are compared to the EU, the UK administered the same number of vaccines yesterday as France have in total. This is making the country an attractive proposition for foreign investors and is driving GBP demand.
There was some cause for concern for the UK economy this morning after GDP contracted in November ended a run of six consecutive months of growth, indicating that we could be heading for a double dip recession. According to data from the Office for National Statistics, UK GDP contracted 2.6% in November as the second national lockdown was implemented. Despite this, the contraction of 2.6% was better than initial market expectations of 5.7%.
It must be noted that economists expect UK GDP to have grown in December, when lockdown restrictions were relaxed in the first part of the month. However, a new economic downturn is forecast for the new year as restrictions were introduced again to tackle the UK’s soaring COVID-19 infection rate.
The dollar’s resurgence from near three year lows halted yesterday after US Federal Reserve Chair Jerome Powell stated that US interest rates wouldn’t rise any time soon and rejected suggestions the Fed may start reducing its bond purchases in the near term.
Speaking yesterday, Powell stated that whilst the US economy remains far from where the Fed want it to be, he sees no reason for changing its highly accommodative stance until the “job is well and truly done”.
President-elect Joe Biden unveiled a $1.9 trillion coronavirus relief proposal to help combat the pandemic and the economic crisis it has caused. The plan includes $160 billion to improve vaccination and testing efforts, $350 billion for state and local governments as well as $1 trillion in relief to families, via direct payments and unemployment insurance. The impact on the dollar was subdued as a significant stimulus proposal had already been priced into the market ahead of the announcement.
- 07:00 – GBP- GDP (MoM – Nov) Exceeded expectations of -5.7% to read -2.6%
- 07:00 – GBP – Manufacturing Production (YoY – Nov) Exceeded expectations of -4.8% to read -3.8%
- 13:30 – USD – Retail Sales (MoM) (Dec) Expected to increase to 0% from -1.1% previous
- 15:00 – USD – Michigan Consumer Sentiment Index (Jan) Expected to decrease to 80 from 80.7