Sterling exchange rates experienced a positive day across the board of major currency pairs yesterday. This is most likely due to improving sentiment surrounding the UK’s economy after Britain’s Chancellor of the Exchequer, Rishi Sunak outlined his much-anticipated Spring Budget on Wednesday afternoon.
The pound was relatively unmoved immediately after his speech, but yesterday pound to euro exchange rates climbed breaching 1.1600 for the first time since the 24th of February. Much of the speech has been released in advance of his official announcements on Wednesday, so there hasn’t been a dramatic impact on the pounds value considering that Britain’s borrowing is going to reach the highest levels since World War Two at around 17% of economic output, which is the equivalent of £355bn.
One of the key takeaways from Chancellor Sunak’s plan is the hike in corporation tax to 25% in 2023. It is currently 19% and this will be the first corporation tax hike since 1974. Sunak has come under some pressure for this announcement, as post-Brexit Britain should be business friendly in the eyes of many to ensure the UK economy remains attractive to foreign investors and businesses. Some economic analysts think there will be pressure on him to backtrack with these plans.
There was some positive economic news yesterday morning which will also have helped boost sentiment for the pound. The UK’s construction sector returned to growth in February after a major slump in December and January, with the PMI (Purchasing Managers Index, compiled by HIS Markit) reading showing 53.3 for February. Any reading above 50 indicates growth so this figure is a positive for the UK economy. The services sector, which is the UK’s most important in terms of its contribution to UK GDP came out just below 50 earlier this week. Should this area of the economy show signs of growth I think there could be more of a market reaction.
There are no economic updates out of the UK today, but the US Non-Farm Payroll figures are likely to cause to largest market reaction in terms of data releases, so this is worth being aware of. The release comes out at 1.30pm UK time.
It has been less than 3-months since the UK’s transitional deal with the EU ended and already signs of tensions between the UK and the EU are showing. The roll-out of the vaccination hasn’t gone smoothly within Europe and blame has been shifted amongst leaders and now, trade between mainland UK and Northern Ireland is in the headlines. On Wednesday, the European Union promised to take legal action against the UK after the British government unilaterally extended the grace period on checks of food imports to Northern Ireland. This is a breach of the Brexit trade deal according to Brussels, and it’s likely to continue to sour the relationship between the UK and EU further.
Yesterday, the UK government was dealt another blow regarding Northern Ireland after loyalist paramilitary groups announced that they will be withdrawing support of the 1998 peace agreement due to concerns over the Brexit deal. The groups pledged ‘peaceful and democratic’ opposition to the deal, but this remains bad news for Boris Johnson who will hope for as much support for the union. Further negative news could influence GBP to EUR exchange rates with political instability often having a negative impact on currency rates.
According to reports in Germany there are concerns about the country’s approach to the easing of coronavirus restrictions, with Stefan Genth, the chief executive of the HDE retail association declaring that “the results of the coronavirus summit are a disaster for the retail sector”. He is not alone in his assessment after the plans for a gradual easing of lockdown restrictions in Germany were announced yesterday. With Germany being the key driver of the EU economy, this topic could impact EUR exchange rates. The euro has already lost 5% against the pound in just the past 3-months. ING Financial Markets, Swedbank AB and BBVA all expect to see GBPEUR above 1.17 in the next 6-months, although for the sake of balance Commerzbank predicts the rate will be lower in 6-months’ time than it is now.
Some positive news for British holiday makers was released from Cyprus overnight, after the Cypriot government has announced that vaccinated tourists from the UK will be permitted to holiday there from the 1st of May.
The US Senate began debating President Joe Biden’s $1.9tn Covid-19 stimulus package yesterday evening, much to the relief of many Americans that require financial assistance and didn’t expect the process to take this long considering the control the Democrats now have. To push the deal through Democrats have agreed to withdraw payments to higher earning Americans, with those earning over $80k (or married couples earning over $160k combined) unable to quality for stimulus payments which are expected to be around $1400. This means that 9 million fewer households will receive stimulus packages compared to the previous pay-outs in 2020.
Later today, as it is the first Friday of the month will see the release of Non-Farm Payroll figures. This is one of the key economic data releases of each month as it covers the number of new jobs created in the US outside of the farming industry. The expectation is for 182k new jobs to be created, and this is quite a climb on the 49k new jobs created last month. If you wish to plan around this release its worth getting in touch before lunchtime, as any major deviations from this expected figure could result in market movement.
The US Unemployment rate will also be released at the same time (1.30pm), and a rate of 6.3% is expected. There has already been some positive news this week out of the US jobs market after weekly jobless claims increased by less than the markets had expected. The labour market outlook is improving in the US now that Covid-19 numbers are declining, although there are some concerns that both Texas and Florida are trying to reopen too soon after both US States lifted coronavirus restrictions recently to the dismay of other regions within the US.
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