COVID-19 remains a key driver on the value of currencies globally, especially those who are experiencing a successful roll out of vaccinations which has been deemed to give that territory a financial advantage once COVID-19 passes.

As of the beginning of the week the UK has given over 22 million first vaccine doses and 1.1 million second doses. The equivalent, of 34 poeple per 100 population. This being very much higher than most with the US at 26, Germany at 9 and France at 8.

Yesterday Matt Hancock confirmed it had reached 23 million which continues to support sterling’s value which now sits close to a 12-month high against the single currency.

Along with the proposed relaxing of lockdown in the UK supporting the pound recently there was also the confirmation the UK economy would be supported by the government in the latest budget announcement. The UK chancellor Rishi Sunak announced further job support, additional grants and a six-month extension of the universal credit uplift. There was a tone of worry about tax increase in the future, however no immediate hikes are supporting the view that the UK could well bounce back once the lockdowns have been released.

Brexit Irish border

It would seem that the concerns about Brexit on the pound have been significantly reduced. Saying that however the legal challenge put forward from Europe around the Irish boarder still remains and could provide an upset going forward for the UK pound. This week members of the Irish government went to the US in search for better relationships with the new administration there which was seen as a result of the fall out following Brexit between Ireland and the UK.

Saying that however initial reports suggest that UK exports to France were down 20% in January compared to the prior 6 months, French exports to the UK over the same period were also shown as falling by 13%. This could well be a considering factor resulting in the confirmation yesterday that some new processes on EU goods coming into the UK have been delayed by six months in order to give businesses more time.

In other news UK house prices were up 0.7% in February from the month before suggested by Nationwide recently.

With more data increasing the probability that the UK and other nations will be entering the post covid world, more questions have been raised around what the world will look like and how nations will manage the ballooning debt levels. One topic of conversation which is gaining traction is the introduction of universal basic income (UBI). This being the introduction of government support across a population with a income supported by the state. This may seem farfetched, however it is becoming more of a mainstream topic for consideration. Only recently the frontrunner in the New York mayoral elections, Andrew Yang, has suggested a monthly $1,000 payment and in South Korea in the presidential election a potential candidate has proposed a national universal basic income.

Many challenges come with this, and indeed changes to tax reform, however something to become aware of as a potential topic which could become more mainstream, around the NHS in the UK and the welfare system.  

Moving forward for the pound today we have several economic data releases which could impact the pounds value in today’s market. This includes consumer inflation expectations at 9:30 and GDP estimates.

ECB to Ramp Up its Bond Purchasing Programme

Yesterday European data reported what most had expected, this being that ‘Based on a joint assessment of financing conditions and the inflation output, the Governing Council expect purchasing rates over the next quarter to be conducted at a significant higher pace than during the first months of the year.’ Announcing that, the European Central bank will be significantly increasing the pace of their bond purchasing from its current high levels, last week the pace of bond buying went up to €18.2 billion. Generally, more money in creation results in it being worth less, but in real terms it is the debt to GDP ratio between currency pairs which can impact currency prices most.

Recently retail sales in Europe fell sharply in January, declining 5.9% compared to the previous month. This was widely expected and put down to lockdowns impacting activity. Overall unemployment remained unchanged at 8.1% in January was also confirmed recently.

Yesterday there was positive news for people traveling into France from the UK as it was announced an easing on the restrictions around travel. The French government confirmed late afternoon that a compelling reason was no longer needed to travel to the UK from France and those arriving from the UK would need a negative test result dated within 72 hours. The French Tourism Minister confirmed that the decision was made due to the improving health situation in the UK and said that the UK would be included along with 5 others "because the UK variant now also circulates widely in France".

Later today we have industrial production data and next week there is confidence numbers released on Tuesday. This is expected to show concerns as Europe continues to struggle with a low uptake of vaccinations resulting in an building expectation that lockdowns may well continue longer. On Wednesday there is also consumer price index along with construction data.

Fed Meeting Concludes as Inflation Rates Soar 

USA Passes COVID-19 Relief Bill

The US 1.9 trillion-dollar Covid-19 relief bill was announced to have passed its final hurdle to become law this week. This was one of the main pledges from President Joe Biden when he entered the White House. This gives a direct payment of $1,400 dollars to most adults and includes several investments to support the vaccination program across the US. He pledged recently that the US would have vaccine doses for every adult by the June and that the 4th July is Independence day from the virus.

This was supportive of the US economy suggesting that it could return from the Covid blows but equally raises the question once more about national debt levels in the US. This positive view for the US economy was also added to by recent data around unemployment which dropped from 6.3% to 6.2% in February as the US economy added 379,000 jobs. Recently GBPUSD rates have started climbing this week and now sits within 2 cents from a multiyear high seen recently on the market.

Over the coming 7 days there are several interesting economic releases pending from the US. On Tuesday, the US releases Retail figures which could impact the value of the dollar. The FOMC meeting is next Wednesday and will be particularly interesting. The general expectations are that the tone from the FED will be to continue printing money through buying more bonds. Generally, as bond yields go up as the FED spends, risker investments become less attractive so this can have an impact on the riskier currencies globally including the South African Rand and others.

This morning GBPUSD rates have fallen slightly from the central resistance level of 1.40 but remains close to multi year highs. This afternoon we have Production Price Index (PPI) released from the UK this afternoon. This is expected to show a contraction which could impact the dollars today.

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