GBPEUR interbank exchange rates have increased by 4 cents to a 9-month high and GBPUSD interbank exchange rates have increased by 3 cents to a 22-month high.
The UK Government has received a fair amount of criticism over the last 12 months regarding the handling of the Covid-19 pandemic, however most market commentators are praising the Governments vaccine role out, which has helped sterling increase in value. Earlier this month the Bank of England even stated that the economic recovery could be quicker than first anticipated if the vaccine roll out continues to be a success and that recovery should being in Q3 and Q4 of 2021.
All eyes will now turn to Prime Minister Boris Johnson and the roadmap he will set on Monday. Sky news yesterday evening reported that a blueprint from Whitehall is suggesting that a reopening of the economy could be quicker than many thought and most of the economy could be reopened by the end of April. However, no member of the cabinet has reaffirmed the blueprint.
The reopening of an economy can only be a positive for the UK economy and therefore sterling. However, if the Government reopens the economy to quickly which results in a surge of cases a 4th lockdown could be devastating. In addition, the furlough scheme is set to end of April, so could the Government be trying to reopen the economy by then so Chancellor Rishi Sunak can keep to his proposed deadline? Regardless of when the furlough schemes ends, any client that is involved in sterling exchange rates should keep a close eye on the unemployment rates, as economists are still debating how many jobs have been lost due to this terrible disease.
In other news it’s a busy end to the week for UK economic data. Friday morning the UK are set to release Public net borrowing numbers alongside Retail Sales. Due to the pandemic Public net borrowing has been high over the last 12 months and has been rising throughout the winter due to the economy being shut down. Therefore, it’s difficult to see how this release will help sterling value. In addition, Retail Sales numbers have been down since the 3rd lockdown begun as the Highstreet has been closed. These numbers released Friday could continue to disappoint however these numbers should be watched closely in the months to come once the lockdown is over.
Last week the European Parliament approved a €672.5billion recovery funds to help European countries get through the Covid-19 pandemic. To access the funds countries will have to allocate 37% of the funds to ‘Green’ projects and 20% to digitise their economies. This is great news for the European countries however history tells us, when a central bank essentially gives out grants and loans, this causes the currency to lose value. In this instance the split is €312.5 billion in grants and €360 billion in loans. Longer term you would hope the Euro benefits from the bailout package, however short term the payments that could begin to be rolled out as early as the summer could put pressure on the single currency.
It has been a tough 6 months for clients selling US dollars to purchase sterling or Euros. The general trend has been for the dollar to weaken against its counterparts as investor appetite increases due to global vaccine rollout. However yesterday the US dollar tried to fight back when Retail Sales numbers were released at 5.3%. Early reports are suggesting the Governments stimulus cheques helped the sharp rebound.
All eyes will now turn to President Joe Biden proposed $1.9trillion Covid-19 relief plan and vaccine roll out. Like the UK the US are hoping for a recovery throughout the back end of 2021 due to the vaccine, however the Feds aggressive Q.E. program could cause the dollar to continue to lose ground against its counterparts and if invest confidence continues to grow, could we potentially see emerging mand assets such as Bitcoin continue to prosper?
There is a fair amount of data to finish the week for the US. Today continuing Jobless Claims are set to be release. Unemployment numbers should always be closely monitored when converting currency, however these numbers are even more important in the middle of a pandemic. In addition, Markit Manufacturing PMI is to be released tomorrow. The manufacturing data provides a good overview of business conditions and the overall economic condition in the United States, therefore this is another release to keep a close eye on.
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