The pound continued its positive run against the euro yesterday, with GBP/EUR Interbank rates briefly reaching the highest point in 12-months and breaking through the 1.17 level, whilst sitting comfortably in the 1.16’s throughout the day.
The UK’s COVID-19 vaccine rollout has been the driving force behind sterling’s recent rally, with Goldman Sachs citing this momentum as being due to ‘first mover advantage’ following the UK’s swift rollout. The number of new cases fell to 8,489 on Tuesday, the lowest daily figure noted this year, and one in three adults in the UK have received their first dose of the vaccine.
The budget will be announced on Wednesday next week, and Finance Minister Rishi Sunak is expected to lay out plans for more spending to continue to prop up the UK economy during the final phase of lockdown, however it is also expected that he will also signal a rise in taxes to help pay for the enormous outlay of more than £280 billion in Coronavirus spending and tax cuts. It is expected that Sunak’s job retention scheme, also known as furlough, which pays for 80% of employees’ wages, will likely be extended beyond 30th April, at an estimated additional cost of £70 billion. It was reported in the Times newspaper that he would also extend the stamp duty tax break for those purchasing properties in the UK until end June.
Chief Economist to the Bank of England, Andy Haldane, has likened the UK economy to that of a coiled spring, ready to bounce back with the savings which households have been accumulating. A strong rebound in consumer spending would mean a rise in tax revenues, which would help with the extortionate amount of debt the country has built up. This figure currently stands at £2.1 trillion, which is the equivalent of 98% of Gross Domestic Product. Rupert Harrison, aide to former Finance Minister George Osborne, has urged Sunak not to try and cut this debt by hiking taxes, but to instead write new budget rules based on record low costs of debt servicing, speaking on a webinar with think tank Onward he said “we can safely carry higher levels of debt than before”.
Although the UK economy is in a favourable position to rebound quicker as more people are vaccinated, especially once lockdown is lifted, any signals to even further Government spending could cause the pound to weaken, therefore clients holding sterling may look to contact their Account Manager ahead of this historically market-moving announcement.
The EUR has continued to fall against the pound throughout yesterdays trading session, largely attributed to its slow rollout of Covid-19 vaccines. To put the eurozone’s sluggish vaccine rollout into perspective, as of 23rd February the UK had given at least one dose to 27.3 out of every 100, compared to 6.4 per 100 in Germany, 6.8 in Spain, 6.1 in Italy and 5.9 in France.
Chancellor Angela Merkel has highlighted that new Covid-19 variants stand to be the biggest risk to a third wave of infections in Germany. Germany has approved home testing to help ease out of lockdown, and Merkel said that they should proceed with great care so that a further national lockdown isn’t required. It was reported yesterday that Germany has used only 15% of its current Oxford AstraZeneca vaccine quota, as the public have shown resistance to taking the vaccine after trials showed it to be less effective than other vaccines available. A spokesperson to Chancellor Angela Merkel urged the public to trust Oxford’s vaccine, reaffirming that it is safe and effective. Germany’s health ministry also said that it expects to receive a further 16 million doses of the vaccine in the second quarter of this year. As we have seen recently with sterling’s recent gains, the UK’s speedy rollout of the vaccine programme has been taken positively by investors, so we could see strength for the euro if European countries begin to follow suit.
We could see further movement on EUR exchange rates this morning, as Consumer Confidence and Business Climate figures will be released at 10am. Consumer Confidence is expected to remain the same as the previous figure of -14.8, and Business Climate is expected to fall from -0.27 to -0.34. Feel free to contact your Account Manager here to plan around these releases.
The number of new home sales in the US yesterday surpassed expectations in January, rising by 4.3%. Historically low mortgage rates have been a large contributing factor to this rebound, along with a shortage of previously owned houses on the market and is a positive sign for the US economy. Economists had predicted a rise of 2.1% in January.
The National Retail Federation have suggested that US Retail Sales figures could jump to 8.2%, to more than $4.33 trillion this year, as more and more people are vaccinated against Covid-19, and the economy reopens. It is expected that the US could see its fastest Retail Sales growth in over two decades. Preliminary results showed a rise of 6.7% in 2020 to $4.06 trillion, beyond expectations of 3.5%. These figures exclude sales of automobiles, fuel stations and restaurants. If Congress pass Joe Biden’s support package, which could include sending a cheque for $1,400 to every household, we could see even further consumer spending and strengthening retail sales, all positive signs for the economy.
This afternoon sees the release of Durable Goods orders and preliminary Gross Domestic Product (GDP) figures for the last quarter of 2020. GDP is expected to rise from 4% to 4.1%, which could help the US dollar to strengthen if this data beats expectations.
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