GBPEUR rates now sit near a 60-day high and have been trading within a tight range. Focus now seems to be on the next stage and on what any post covid economic environment may look like. Whether that is delayed in the UK could well have an impact on sterling’s value going forward
Covid vaccinations rates in the UK remains one of the highest compared to others but still has the potential to impact currency prices in the future as it has in the past. There is a mounting concern around the Indian strains case numbers, which are being keenly watched. In the UK last week 33,496 COVID-19 cases in the seven days to 6 June, an alarming increase of 49% on the previous week.
The UK has now administered 40.3m first vaccine doses and 27.7m second vaccine doses. Through last week 0.9m first vaccinations were administered along with 2.2m second. This interestingly represents 99 doses per 100 adults compared to the US at 90, Germany at 65 and France at 59.
Concerns are mounting that this new strain could well impact the timelines of restrictions being lifted in the UK. This in turn could easily have an impact on the economic health and growth forecasts for the United Kingdom and therefore impact sterling values.
It has been reported that the Delta (Indian) variant is about 40% more transmissible than the Alpha (Kent) variant. Cases of the Delta variant are doubling every nine days, according to epidemic specialist Neil Ferguson of Imperial College London. Mr Ferguson said, “the best estimate at the moment is this variant may be 60% more transmissible than the Alpha variant”. The latest commentary from the government is “absolutely open” to delaying the final lifting of England’s lockdown restrictions on 21 June if necessary. Interestingly the government has also suggested that they are open to extending the furlough scheme if needed which is currently scheduled to be concluded in September.
What is also worth noting is that it is not just the prospect of the relatively short-term news on any lifting which could have an impact, but also the long-term impacts of ‘long covid’. The Office of National Statists (ONS) recently reported that over one million people in the UK are now suffering from the long-term impacts. This in turn can impact NHS health costs going forward and the future efficiency of a national workforce.
Economically it was recently reported that UK construction activity surged to a seven-year high in May, according to the IHS Markit/CIPS PMI. Inflation however is starting to have an impact as severe supply shortages had driven prices higher. For example, Builders’ merchant Travis Perkins announced a warning to its customers of considerable cost increases due to an industry-wide shortage of materials going forward.
Yesterday morning UK house prices also showed further hikes in prices climbing 9.5% month on month which was reported by Halifax. Moving forward for the rest of the week Friday is the busiest day for the UK when Manufacturing, Trade data, Industrial productivity and GDP figures are released.
The main news from the Eurozone this last week has been focussed on political events. German chancellor Angela Merkel’s Christian Democrats party won a decisive regional vote recently. This was the last state test before the national polls in September. Germany is widely seen as the ‘engine room’ for Europe and therefore is keenly watched at as a result so this event could be crucial.
The UK and EU reached an agreement on fishing rights after months of negotiations, the deal was seen as a positive development ahead of wider Brexit talks this week. These talks are around Northern Ireland protocols. Saying that however the European Union’s ambassador to the United Kingdon on Sunday said that “the levels of trust are low right now.”
Economically euro area inflation was confirmed recently rising to 2% in May, exceeding the Europeans Central Bank’s (ECB) target for the first time in more than two years. Later today we have several key events from the Eurozone including Unemployment figures and GDP figures. These will be keenly watched in anticipation of all important ECB interest rate decision and meeting taking place on Thursday. Topics around the banks policy going forward will be keenly watched as they balance policies supporting growth in a pre-covid environment while keeping inflation under control.
Last week we saw the latest jobless figures from the US which confirmed the US economy created 559,000 jobs in May. Overall unemployment fell to 5.8% from 6.1% in April. The US Federal Reserve also commented suggesting that it would begin to unwind the corporate bond purchases it made as part of its actions to stabilise the financial system last year as the repercussions of the pandemic were first estimated. These US spending numbers are however staggering so most expect this to take some time, however the settlement change around this fiscal policy from the FED could well have a large impact over future months.
Over the weekend the latest G7 group of countries made big news with steps forward towards a deal to make multinational companies pay more tax. They also agreed in principle to a minimum global corporate tax rate of 15%. Details on how this will be put into practise is yet to be defined however this could have an impact on company’s head office locations in the future along with work force locations.
There was a reaction from the US however which has now gone on to threatened to levy tariffs on 6 countries to protect US tech firms. This includes the threat of a tariff on the UK of $2bn worth of goods.
Economically for the US later today, goods and services trade balance are confirmed this afternoon. This is expected to show a contraction suggested by FX Street, which in turn could weaken the USD.
Thursday is however the busiest day for the US dollar with Consumer Price index, Jobless indicators, and the Monthly Budget statement from the FED. The FED news could be very interesting following commentary from US Treasury Secretary Yellen who said higher interest rates would be a 'plus' for US over the weekend. Yellen said that President Biden should push ahead with his spending plans even if that meant that inflation would persist until next year and led to higher interest rates.
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