The release of UK unemployment rate showed an increase from 4.9% in October to 5% in November, however this figure was lower than the 5.1% expected and provided the Pound with a boost. The number of people claiming for jobless benefits rose by 7,000, but was far below the previous figure of 38,000 and expected figure of 35,000. UK wages also rose by 3.6% compared to the previous year. 

However, UK retail sales in January saw the biggest annual fall since May, demonstrating the impact the third UK lockdown is having on the economy. The Confederation of British Industry’s retail sales balance fell from -3 in December, to -50 in January, below all forecasts, with expectation for the retail sector to continue struggling as the lockdown continues.

UK Covid Cases Rise

As the UK death toll reached 100,000 yesterday, concerns have been mounting over the supply of Covid-19 vaccines, after the EU suggested the potential to tighten vaccine export controls. UK Vaccine Minister Nadhim Zahawi yesterday confirmed that supplies of vaccines were ‘tight’ but is confident that the UK will still meet its target to deliver a first dose to 15 million of the most vulnerable people by mid-February, and offer all adults in the UK a first dose by the Autumn. The UK currently has supplies of the Oxford AstraZeneca vaccine, manufactured in the UK, and the Pfizer vaccine which is manufactured in Belgium. The UK’s quick response to the rollout of its vaccination programme has been forecast as being positive for the UK economy in the long term, so this news was taken positively by those investing in the pound.

Reports in the German media of the Oxford AstraZeneca vaccine having extremely low efficiency rates in older people has also been ruled out by Oxford University, AstraZeneca, along with the German health Ministry, which is another positive for sterling.

The pound has broken through the 1.13 Interbank level for the first time in almost a week this morning, after Finance Minister Rishi Sunak announced that the UK and Switzerland will continue moving forwards with plans to form a trade deal for their financial services industries, with the two countries hoping for a ‘mutual recognition’ deal. Sunak is expected to hold a meeting today with some of the largest global banks. As financial services is one of the most important sectors of the UK’s economy, contributing over £130bn to the economy every year, any positive news from todays meeting could help strengthen the pound further.

Slow Eurozone Vaccine Rollout Casuing EUR Weakness

The euro continued to struggle against the pound yesterday, as concerns regarding Europe’s slow rollout of its vaccination programme continue to weigh on the value of the euro. The International Monetary Fund (IMF) yesterday downgraded growth forecasts for Europe and the UK due to the handling of the Coronavirus pandemic, stating that activity in the Eurozone and Britain is likely to remain below pre-pandemic levels throughout the year and into 2022, compared to the US and Japan who are expected to return to end of 2019 levels later on this year.

Italian Prime Minister Guiseppe Conte announced his resignation yesterday in an attempt to form a new coalition government, to combat the Covid-19 pandemic which has so far killed more than 85,000 people in Italy, the sixth highest death toll worldwide, whilst having dire repercussions on its economy. The PM’s resignation has been accepted by Italy’s President Sergio Mattarella, who will now begin consultations with other party leaders this afternoon. Should Mattarella decide that Conte can secure the required backing to form a new administration, he will likely give him a few days to make a deal and pull together a new cabinet. This would likely be positive news for the euro, with investors hopeful of Conte being able to come through with a more stable government. 

Preliminary German Gross Domestic Product (GDP) figures for Q4 of 2020 will be released on Friday morning and are expected to fall dramatically from 8.5% in the third quarter, to 0%. As Germany is regarded as the economic hub of Europe, we could see euro weakness if figures are in line with expectation, therefore clients with an upcoming euro exchange requirement may wish to get in touch with their account manager here ahead of this announcement.

Lack of Monetary Policy Action Hampers USD Recovery

US Federal Reserve Interest Rate Decision

The pound recovered from near one-week lows against the US dollar throughout the course of yesterday, with GBP/USD Interbank rates pushing to the highest levels seen this year this morning of 1.3758. Positive UK employment figures released yesterday morning helped the Pound to strengthen, followed by worse than expected US house price data falling from 1.5% to 1% in November.

This evening at 7pm, the Federal Reserve will announce its latest interest rate decision, concluding its meeting over the last two days. FED Chairman Jerome Powell has stated in the last two meetings that Inflation and Employment are two areas of concern, and focus will be on these this evening. The central bank has reiterated that it is committed to using all the tools available to help support the US economy, although analysts are expecting rates to be kept on hold at 0.25%. The FED will release its Monetary Policy Statement afterwards which could provide signals to future policy changes.

US quarterly Gross Domestic Product (GDP) figures will be released on Thursday, and analysts at Bloomberg have predicted a 4.2% expansion in the final quarter of 2020. These releases have the capacity to create significant movements for US dollar exchange rates, so feel free to get in touch so that we can keep you up to speed with the latest developments.

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