The success of sterling has been well documented in our reports. Sterling had been the best performing major currency of the year. Rewind a couple weeks and GBP/EUR interbank exchange rates was trading at 1.18 and GBP/USD also known as Cable touched 1.4140 in February. This was largely due to the well-known success of the UK vaccination program where currently 33.5 million adults have been jabbed and just over 12 million have had both doses. This brings the total number of jabs given to over 45.5 million.
However, April has been a rocky month for sterling as the currency suffered its worst week versus the euro since September 2020. Furthermore, Daragh Maher Head of research at HSBC suggests the pound is the worst performing G10 currency month to date. He goes on to incline that much of the good news is already in the price, hinting towards the early lead in the vaccination race has now been accounted for by investors.
Nevertheless, there is still some optimism in the short-term as Francesco Pesole, a strategist at ING states that economic data is still supportive of the pound; strong retail sales, good PMIs, inflation rising (although below expected levels) and unemployment decreasing to 4.9% all support the strong recovery idea. We have all seen the queues for Primark in our local high street, during the week the retail giant said many of their stores smashed their daily sales record with staff members working longer hours to deal with demand. Thus, giving evidence backing Pesole’s idea of strong retail sales and Services PMI data, yet the pound failed to be sparked. Testing as high as 1.17 at the start of the week and ending the week at 1.1455.
However, it is not all doom and gloom for sterling according to the Commonwealth bank of Australia. Last week the bank forecasted that GBP/EUR will rise to 1.25 over the coming months, while also giving a strong indication that analysts at the bank do not foresee GBP/EUR to return to or dip below the 1.1350 level.
Economic data this week is quiet for the pound with Nationwide housing prices being the only notable piece of data released this week. It is well known for any house hunters out there that stamp duty rules have been relaxed until September 2021, stimulating incentive to get deals done before this deadline. A buoyant housing market is typically bullish for a currency. Admittedly the data release is unlikely to have a huge impact on exchange rates, but it is worth keeping an eye out for.
The single currency has suffered for the majority of 2021, with widespread COVID outbreaks and the departure of the UK from the union, both taking their toll on the continent. However, are their signs that after a slow start the continent is getting things under control? Chris Williamson Chief business economist at HIS market supports this theory. During a month where virus containment measures were tightened across the continent to counter waves of infections, the Eurozone economy showed encouraging strength. Europe’s latest PMI projections have bolstered demand for the single currency and caused it to swing exchange rates in its favour.
Europe’s vaccination programme has accelerated in recent weeks, with the European commission expected to soon seal the biggest vaccine supply deal in history. It is estimated 1.8 billion doses of Pfizer’s vaccine have been ordered between 2021-23. This agreement alone is enough to inoculate Europe’s 450 million population for two years. It is the third contract agreed by the EU and Pfizer, which have already agreed to supply 600 million doses this year under the two previous deals.
It comes as Ursula von der Leyen plans to have vaccinated 70% of the adult population with at least one dose by end of July, the previous target was to have this achieved by the end of September. President von der Leyen was keen to brush off ideas that these deals are stopping vaccines reaching poorer parts of the globe, stating that EU-based plants have exported 155 million doses to 87 countries since December.
However, peel back the layers and not everything is as good as it seems. Angela Merkel has recently announced an ‘emergency break’ lockdown in a video address to the nation, some areas of Germany are experiencing more than 100 new infections per 100,000 people. Restrictions on households meeting and shop openings are reinforced with a 10pm curfew. According to the Robert Koch institute Germany recorded 23,000 new Covid-19 cases in 24 hours, with the April 22nd situation report stating over 5,000 people are in intensive care fighting the virus. So far just over 20% of the population have received their first dose of the vaccine.
Eurostat have released striking figures that Europe’s Government debt to GDP ratio rose from 83.9% at the end of 2019 to 98% at the end of 2020. Both public and government debt have seen a sharp increase due to the pandemic. It is well known the struggles Greece have been through over recent years, it is reported that their total debt is 205% of their GDP with Italy next on the list at around 155% of GDP. With some of the €750 billion EU bailout package being grants, early reports of the deal suggest Italy could tap into grants worth 5% of its national income. A figure that now looks irrelevant when these recent statistics from Eurostat have been released. With the remainder of the package coming in the form of loans, the question is how can a country like Greece can afford to pay back a loan whilst in such high levels of national debt?
This week sees a heavy week for EU led data, with ECB President Lagarde’s speech on Wednesday. Followed by Eurozone GDP and CPI data, with Germany widely known as Europe’s powerhouse economy releasing their GDP data on Friday.
America has seen an unstable start to the year, with President Joe Biden having to overcome hurdles before he was even allowed to get his feet under the desk of the White house. Crippling levels of Covid 19 infections, civil unrest and protests across the nation, Donald trumps’ stop the vote and staggered parting of office and most recently the threat of being dragged into a war with Russia over Ukraine have all been a hinderance to the new president.
Its hard to believe the country has suffered with nearly 600,000 covid deaths and 32.8 million positive cases. When Biden came to power, he promised to hit 100 million doses by his 100th day in office and later furthered his comments and raised it to 200 million. On 22nd April that number was hit, a week before his 100-day deadline. The center for disease control and prevention said this weekend that 138.6 million people have received at least one dose of a Covid 19 vaccine. With 93 million now fully vaccinated.
The Johnson and Johnson vaccine was halted as regulators investigated reports of blood clots in a small number of patients. On 23rd April the halt was lifted with no significant findings. Figures from the center for disease and control and prevention estimate that at current pace 80% of the total US population will have had at least one jab by 31st July. With the remaining 20% of the population made up by children 16 and under.
US Federal Reserve is holding its April meeting on Wednesday. Fed Chair Jerome Powell may be asked about how fiscal policy could impact the outlook on the country. Along with tax hikes, Biden is attempting to pass a $2 trillion infrastructure bill. The White house self-proclaims on their website that the US is the richest country in the world, but they rank 13th in the world for infrastructure.
A key data release to keep a close eye on this week is the first-quarter of 2021 GDP. This piece of data is released on Thursday. GDP which essentially measures growth gives a good indication of how strong a nation’s economy is performing and can have a major impact on the currency.
The dollar had a strong first quarter against the euro clawing back 4 cents on interbank exchange rates across the 3 months. Mark Chandler chief market strategist at Bannockburn global forex said that the dollar in the first quarter gained 3.6% but it has lost about 2.6% so far in April. Although against sterling the dollar had a stormy couple of months, losing around 4 cents as sterling rallied on. Since then, it has managed to pull cable levels to the $1.38-1.39 region.
Outside of the currency market, US stock markets have been booming with the S&P 500 (500 largest US publicly traded companies) passing a price of 4000 for the first time in its history. Seeing around 50% increase in the index price over the last 52 weeks. With many of the US markets soaring high so far in 2021, could that give us an early indication to the recovery for the US and the dollar that may lie ahead?
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