At the time of writing sterling is sitting at 1.143 against the euro and 1.385 against the dollar at the time of writing.
A positive outlook continues to be taken by investors who are backing the UK’s ability to bounce back from the latest lockdown induced economic slump. Since the turn of the year the pound has been one of the better performing G10 currencies. Sterling has been supported by both optimism on the economic outlook resulting from the UK’s rapid vaccine roll out and the relief that Brexit is finally completed with the successful negotiation away from a no-deal scenario.
Despite the current positive outlook for Sterling and the UK, the political and economic scope for the remainder of the year is far from stable. Brexit is casting long shadows particularly with respect to the issues concerning Northern Ireland and the UK’s new trading relationship with the EU. On top of that, UK politics could be rocked by the Scottish elections in May which look set to bring strengthened calls for Scottish Independence.
A report conducted by Manufacturing Northern Ireland found that more than a quarter of businesses said that they had suffered significant problems post Brexit. These companies said they are ‘struggling significantly’ with the new processes and do not expect their problems to ease. Three quarters of companies said that their suppliers based in Great Britain were either unprepared for the new system or unable to cope with it and as a direct result companies in Northern Ireland have re-orientated their business to buy locally or source from the EU rather than GB.
Official GDP figures released on Friday by the Office for National Statistics (ONS) showed that GDP shrank in 2020 by 9.9 per cent. A contraction double than what was seen after the 2008 Financial crisis and worse than the 1921 slump after the first world war and Spanish flu pandemic. The data release was a relative non-event on Sterling rates as it came as no surprise to investors and was seen to be already priced into the market.
The UK government downplayed the news that the EU is taking business away from the city of London. Britain’s trade deal with the EU does not include arrangements for free trade in financial services, which is the engine of the UK’s economy.
Data published on Thursday showed Amsterdam has displaced London as Europe’s biggest share trading centre after Britain left the EU’s single market. “If we’re really honest about it, the challenge to London as the global financial centre around the world will come from Tokyo, New York, and other areas, rather than from those European hubs, particularly if they start to erect barriers to trade and investment,” foreign minister Dominic Raab told the BBC.
In Italy, the ex-head of the European Central Bank (ECB), Mario Draghi, has been sworn in as the next prime minister. Mr Draghi has put together a unity government of the country’s main political parties, following the collapse of the previous administration last month which was thrown into chaos over how best to spend the EU recovery fund. Italy is still battling with the pandemic and faces its worst economic crisis in decades.
Mario Draghi nicknamed ‘Super Mario’ was credited with ‘saving’ the euro as president of the ECB at the height of the eurozone crisis. His main priority as he takes office will be to work out how best to spend over €200 billion of EU recovery funds to rebuild from the pandemic.
Friday saw a turbulent day of trading for EUR/USD, with the pairing dropping below its 21-day average level of 1.21 and reaching lows of 1.2080 before a wave of USD weakness saw the pair recover back above the 1.21 level sitting at 1.212 at the time of writing.
Analysts from Dankse Bank continue to forecast EUR/USD at 1.22 in one to three months and forecast a decline to 1.16 in a twelve-month period. With forecasts predicting a long-term decline for EUR/USD rates it is important to keep in touch with your account manager here who can keep you up to date with market movements.
In the US, first-time claims for unemployment insurance totalled 793,000 last week as declining Covid-19 cases provided little respite for the US jobs market. The total for the week was above the 760,000 forecast by the Dow Jones but a slight decrease from the previous week’s total of 812,000. “Job growth will remain soft for the next few months as the nation continues to struggle with the pandemic,” said Gus Faucher, chief economist at PNC Financial Services Group. “But job growth will pick up in the spring as vaccine distribution and better weather make people more willing to venture out, and stimulus efforts have given consumers more money to spend.”
Federal Reserve Chairman Jerome Powell said Wednesday the job picture remains ‘a long way’ from where it needs to be and said the central bank is committed to keeping interest rates low until substantially more progress happens.
There has been a contrast in views among traders so far over how President Bidens $1.9 trillion fiscal stimulus package will affect the dollar. Some see it bolstering the currency as it should speed up the US recovery relative to other countries, while others see it encouraging global reflation and therefore lifting riskier currencies at the expense of the dollar. The dollar was down 0.5% against the single currency and 0.2% against pound last week. If you have any upcoming transfers involving the dollar, it is worthwhile keeping in touch with your account manager who can keep you up to date with developments.
US financial markets are closed today for Presidents Day. Bank holidays in the US have implications for the global currency market and may cause delays in payments. Please bear this in mind when booking deals today particularly if you have an exchange involving the dollar.
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