The UK has seen growing consumer and business optimism which together is a big driver of economic growth. This in turn could fuel a strong recovery in UK consumption and business investment allowing the economy to fully recover by the end of 2021, which is a lot quicker than most forecasters originally expected. Latest political analysis by Ipsos Mori reveals the British public are the most optimistic they have been since 2015 and 90% of those polled said the UK government has done a good job with vaccinations.
According to YouGov, Britons are now much more optimistic about the Covid-19 situation compared with their European counterparts. The rise in confidence is due to the well reported rapid vaccination rollout which “hopefully” allows a sustainable and irreversible opening of the economy.
Bank of England Governor Andrew Bailey recently commented on the UK’s economic prospects. In a BBC Radio Four interview Bailey said he saw “upside risks” to the growth forecasts, which many foreign exchange analysts say supports further pound strength against the majority of major currencies.
The UK economy is expected to see a sizeable jump in consumer spending later this year, according to economists at Deutsche Bank. The bank also believe the Bank of England are underestimating the scale of the impending consumer lead rebound. Deutsche Bank analysists expect to see UK economic growth of 1% of Gross Domestic Product on the back of built-up savings during lockdown. This is more than twice the expected growth forecast by the Bank of England. Tomorrow around mid-day, we will hear from the Bank of England and their policy decisions which has the potential to affect the pound’s value.
Why does this matter? If the economy rebounds more aggressively than anticipated, this could in turn drive inflation, raising market expectations for future interest rate rises in the UK. Generally speaking, if it looks like interest rates are going to rise, then the currency in question can strengthen as this reflects a buoyant economy.
Keep up-to-date with market movements involving the pound by speaking with your account manager at Foreign Currency Direct.
Optimism in the Eurozone has taken a significant knock, on recent news that European countries have banned the AstraZeneca/Oxford University vaccine, which was to be the backbone of the Bloc’s vaccine rollout through 2021. The major players: Germany, France and Italy, alongside other countries have suspended the vaccine rollout until further investigations are made into the causal link with blood clots.
Chris Beauchamp, Chief Market Analyst at IG said, “With Italy facing another wave of infection, now really isn’t the time to reduce the vaccine options available to European populations and the prospect of an extended crisis in Europe. The UK and US move fully into the recovery stage, which threatens to undo much of the rally in European markets.”
AstraZeneca has said over 17 million people are now vaccinated, it has the evidence required to support the fact the vaccine does not cause blood clotting.
On the back of this news, the euro exchange rate is tipped to underperform according to Derek Halpenny, Head of Research at MUFG in London. MUFG have gone as far as recommending selling the euro this week.
Peter Vanden Houte, Chief Economist at ING Bank has a similar thought process “We unfortunately have to repeat that the sluggish pace of the vaccination continues to jeopardise the recovery in the eurozone”.
Foreign exchange analysts at Barclays have told their clients to expect the euro to remain on the “weaker side” this week.
Retail sales in the US fell -3% last month which was more than expected (-0.5%). The pound to dollar rate rallied on the back of the surprisingly negative retail sales figures. The Federal Reserve puts this decline down to the severe winter weather in the south central region of the country.
Last week, President Joe Biden signed off on a $1.9 trillion fiscal support package, which has perked up expectations for US economic growth. This financial support package alongside the rapidly growing vaccination programme in the US, means the US Dollar could see some positive economic results throughout 2021.
President Biden suggests that all American adults could be offered the first of two vaccine shots by 1st May which means the US could leapfrog the UK and lead the charge among major economies in the race for herd immunity and ultimately economic recovery. To achieve herd immunity with Covid-19, scientists believe that between 50%-67% of the population need to be resistant. The infection rate will then drop and the virus peters out, in theory.
All eyes will be on the Fed’s communication today which will include economic and interest rate projections. The Federal Open Market Committee’s monetary policy meeting will likely define near-term movements of the US Dollar. Key issues will be whether the Fed will cap recent rises in long-term rates and any hints towards tapering policy measures in response to climbing inflation expectations.
Depending on what is said by the Fed, the US dollar could see some volatility today, so if you are planning an exchange involving the US dollar, stay in touch with your account manager.