There were two reasons in particular that appeared to be why the pound had a good week, along with the fact the risk of a no deal Brexit has now been lifted, something which had burdened sterling exchange rates for a number of years.
The first reason for positive vibes around the pound was due to the Bank of England Governor Andrew bailey speaking earlier in the week, and the fact that his comments suggested that there would not be a move to head for negative interest rates, coupled with cold water being poured on any further stimulus in the near term either.
Governor Bailey commented that there were “lots of issues” with negative interest rates and that cutting rates further could hurt the banks and this led to the markets repricing the pound with a view that a move to lower interest rates at the next Bank of England interest rate decision on February 4th.
Interest rates can be important for the performance of a currency, the higher an interest rate the more attractive that currency is to investors and with the markets moving on speculation as well as fact, even the mere hint of a rate changing or not changing in this instance can have an impact on that currencies value.
The second factor that appears to be assisting the pound is the pace of the vaccine rollout compared to many other areas around the world. The more jabs that go into arms the quicker an economy should be able to start preparing to come back out of the traps and to open up again, so in comparison to many areas of Europe as an example the UK is streets ahead at present.
The UK has now vaccinated more people than have tested positive for the virus, posting a figure of 3.5million jabs having been done as of yesterday, compared to a very minimal figure in France to date. There are fears that France could have problems with the vaccine rollout, latest figures showed that 77% of the UK would be prepared to take the vaccine compared to just a mere 40% in France, and the French Government have suggested that they could be in for a marathon not a sprint in the coming months.
With the pound being the best performing G10 currency of the week last week you may feel that it could be suffering a short term over valuation, but experts such as Petr Krpata, Chief EMEA strategist for interest rates and FX at ING have suggested that the pound may have further to rise, and that the positive approach and rollout of the vaccination could continue to offer short term support.
It was reported yesterday from the Chief Exec of the NHS that 140 jabs per minute are being administered in the U.K at present, despite many shortcomings in other areas of the pandemic it does appear that this is an area that the Government can currently hail a success story.
Chinese GDP data was released last night and showed a growth of 2.3% in 2020, the only one of the larger world economies not to show a contraction. It is important to realise though that this is their worse growth level for four decades, so even though on the face of it this seems like a huge positive there are still struggles all around the world.
No major changes to rates such as the Australian dollar this morning as the figures were not a million miles away from expectations, and the 6.5% for the quarter help stop any major volatility.
Euro exchange rates could be in for a challenging week this week and all eyes will be on European Central Bank president Christine Lagarde and her tone in the latest ECB interest rate decision, monetary policy statement and press conference. It is feared that economic data is expected to continue to get worse and that the Eurozone is on the cusp of a double dip recession.
Lockdowns in both Germany and the Netherlands are now tougher than they were in the first phase of the pandemic and consumer confidence, along with most of sets of economic data is getting worryingly low.
Expectations are for a fairly dovish tone from President Laragde for precisely the reasons stated above and should this be the case we may see euro weakness towards the end of the week.
The ECB has historically poured sunshine on rainy news, and more often than not they tend to avoid being too negative, but it will be hard to put a positive spin on the current numbers, coupled with the fact that the slower rollout of vaccines across many areas in the Eurozone may lead to these negative data sets taking longer to turn around than other areas, such as the UK
Areas of the Eurozone such as France still have a huge battle on their hands due to such a large portion of the nation currently suggesting they would not seek to have the vaccine, and only 40% being willing to at this stage according to recent figures.
On Friday we also have Manufacturing and Services PMI (Purchasing Managers Index) figures, both also expected to have got lower. These figures give a good overview of the manufacturing and services industry and will be closely watched to round off the trading week.
We have a fairly important week ahead for those following the Dollar, or any currency pegged to the Dollar.
On Thursday of last week President elect Joe Biden announced his latest stimulus package, which included an extra $1400 in one off payments for households with less than a $75,000 income and plans to put money behind a huge testing and vaccination program to get the U.S economy moving forwards again.
Should it look like the package is going to get the green light then this may give the Dollar some short-term strength, and President Biden has expressed the need for Congress to act quickly to get this through, however, to get through the senate the majority of new legislation will need 60 votes, this will require at least 10 republican votes as Democrats will have 50 seats, so it could get interesting.
Also notable for the U.S in the week ahead is that President Biden is due to be inaugurated on Wednesday 20th, and there are concerns that this may not run smoothly. Only two weeks ago we saw horrific scenes in the U.S and although preparations have been put in place to try and avoid a similar situation occurring it would be a great surprise for this event to pass without any serious trouble.
The rehearsal had to be cancelled due to concerns from the FBI, so whilst we hope that nothing happens it is key to keep an eye on this situation, as political uncertainty and unrest in a nation can weigh on a currency and may cause the Dollar to weaken should any big issues occur.
If you have Dollars to purchase or any currency pegged to the Dollar then it may be prudent to speak to your account manager here at Foreign Currency Direct as we have plenty of options available to help you avoid any adverse currency movement.
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