The coronavirus has had an unexpected effect on, economies, businesses, and individuals in ways we could not have prepared for. Putting the past behind us and moving forward the future looks promising.
Bank of England governor Andrew Bailey recently stated, ‘the economy will actually get back at the end of this year to where it was at the end of 2019’. The Bank of England on Thursday confirmed that they will once again be holding interest rates at their historic record low.
Global interest rates in developed worlds all close to a remarkable low. Allowing the pound to boost against a number of major currencies.
Where worldwide economies are tackling the same issue of a safe reopening, we were also faced with Brexit, whether it is good, bad or indifferent, the pound has gotten a lot of support which has given opportunities to arise in both the buying of the euro and the US dollar.
The bank of England has stated that until inflation in the UK has not risen substantially, interest rates will not rise, having an impact on the strength of the British pound.
Till the community does not see a change for the better in removing spare capacity and achieving the 2% target for inflation, the monetary policy would not be changed.
Spare capacity refers to the economy adding more jobs without it raising inflation. The committee has not stated a change in the monetary policy as they are concentrating on eliminating spare capacity and achieving a 2% inflation target.
The pound-to-euro exchange rate was at a 14-month high leading up to the release of the bank of England’s decision and guidance on interest rates and the economy. The fall in the pound since the event could be put down to investors expecting to see more from the Bank of England or the recent comments from the EU around vaccine exports.
Multiple countries across Europe are coming to terms with the prospect of a 3rd lockdown as coronavirus wave sweeps through Europe. Countries that potentially could be affected are Spain, Italy, France, Germany and many more.
The decision to pause the use of the AstraZeneca vaccine over health concerns is likely lead to a rise in cases and a high number of deaths and has probably left much of the EU’s population wondering what’s going on. The Astrazeneca vaccine which has now been approved for the masses across the EU faced scrutiny from countries who ignored the continuous approval from the European Medicines Agency suggesting there was an increased risk of clotting, however all the countries are now back to administering the vaccine.
Emmanuel Macron, who at the end of January committed to not needing a third lockdown, has just placed Paris into a one month lockdown. Macron who faces the French polls later this year could well have hampered his chances of getting re-elected.
This week there is one major release from the EU which could have a significant bearing. The Markit Manufacturing and Services Purchasing Managers Index (PMI) will be released on Wednesday. This will provide a insight into executives across sectors on how they forecast the next few months performance. As we’re seeing talk of further lockdowns across Europe it will be interesting to see whether this disruption creeps into the PMI data.
Over the last week the US population have been receiving their $1400 Coronavirus stimulus cheques which are all part of President Joe Bidens $1.9tn recovery fund for the country. There is real optimism that this will help boost the economy as everyone essentially has free money to spend.
Furthermore, as you can claim for dependents the average 2 adults, 2 child family could end up with thousands of dollars. There are salary controls in place so high earners won’t benefit but this could also be a model for the future for helping reduce the rich/poor gap.
The question on many people’s lips is, how do you pay back a $1.9tn debt and the Government is essentially printing money?
This means Fed Chairman Jerome Powell is keeping a close eye on the inflation levels over the next year to see what impact that much cash injected straight into consumer pockets does to the economy, it’s safe to say this model hasn’t been used before on this scale.
So far however the US dollar has benefitted with the currency maintaining its ground, with the GBP/USD sitting below the 1.40 level, it will be interesting to see if that lasts as we move later into the year.
There is a busy week of data and releases from the US this week. On Tuesday we will see New Home Sales and Federal Reserve Chairman Jerome Powell testify before Congress, no doubt the Coronavirus economic recovery will be front of mind.
On Wednesday we will then see Durable Goods orders which gives an insight into US Production activity and is often a key economic indicator. Then the final major release of the week is Gross Domestic Product for Q4 on Thursday which is expected to remain at 4.1%.
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