At the start of this week, non-essential shops, hairdressers, and outdoor hospitality have been reopening. Rates for GBP/EUR and GBP/USD yesterday were up by around 0.5%. The move higher is welcome after a sharp fall of nearly 3 cents against the euro following a brief high of almost 1.18 seen exactly one week ago.
UK Gross Domestic Product data released this morning arrived slightly better than forecast at 0.4% in February after a contraction in January. The lift was largely brought about by a jump in the manufacturing and construction sectors whilst front facing services grew by just 0.2%. The figures highlight how adaptive the economy has become.
Confidence in the UK was dented last week after the Medicines and Healthcare products Regulatory Agency (MHRA) recommended people under the age of 30 are to be offered alternatives to the AstraZeneca jab following the link to extremely rare blood clots. As millions are being reassured about the safety of the AstraZeneca vaccine there has nonetheless been a negative impact and to a certain extent on the pound. There is a suggestion that the decision may in the future be applied to under 40’s. Meanwhile the European Medicines Agency (EMA) is investigating reports after four people died after receiving the Johnson and Johnson vaccine. If there is a link, then this would have implications for the UK also.
Covid cases are expected to rise after restrictions ease in June although it remains unclear as to whether there is a major third wave or just a smaller uplift in new cases. The race is on between increased viral spread and vaccination. The government claims to be on track to deliver a jab to all adults by the end of July although if confidence continues to wane then this target may not be possible and may have implications for the pound. Cathy Newman who broke the AstraZeneca story has said “It would be a tragedy if Britain’s brilliant vaccine rollout was scuppered by a crisis in confidence.”
The government is currently negotiating an extension to its contract with Pfizer which could see further doses on UK shores. The first 17 million Moderna vaccines have also arrived and another vaccine Novavax will be made in the UK. All these developments look positive for the UK’s growth outlook and hence the pound. Under 50’s are expected to be called up for jabs this week.
EU retail sales data released yesterday arrived better than forecast rising to 3% in February providing some hope for the EU recovery. The EU is battling a third wave of the virus with many countries seeing a fast increase in Covid cases as well as further lockdowns; the road to recovery is proving a bumpy one. European Central Bank (ECB) President Christine Lagarde will be speaking tomorrow and may offer some further guidance on the central bank’s projections for the recovery. For the moment, the ECB will continue with its pandemic bond programme until March 2022.
As the conversations around vaccines continue there is a growing feeling that the markets may have been too pessimistic over the EU's vaccine programme. France and Germany are now picking up pace with millions of inoculations being given. The EU are also considering restricting the AstraZeneca vaccine to only those aged 60 or over.
Industrial production numbers are released tomorrow whilst EU inflation data round off the week on Friday.
The pound found support against the dollar yesterday after a sharp fall in rates seen last week. The US economy has seen some impressive data of late including creating 961,000 jobs in March. The data boosts confidence for a strong US recovery that ties in with the Biden $1.9 trillion stimulus package. Covid19 cases in the US have been rising in recent weeks but so too has the roll out of vaccinations. Tom di Galoma MD at Seaport Global Holdings said, “It seems to be that the recovery is happening much more quickly than people thought and could possibly move the Fed into a position where they may have to do something sooner rather than later.”
Due to underlying economic problems from Covid the central view is that the Fed and government will continue to stimulate the economy. Nancy Vanden Houten economist at Oxford Economics expects the Fed to keep rates steady until mid-2023.
US inflation data is released later today which could create some volatility for the dollar as there are concerns the economic recovery is pushing up the cost of living. Fed Chair Jerome Powell will be speaking tomorrow and any guidance offered could result in market movement. He has previously said that the potential wave of coronavirus to derail the economy remains a key risk.
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