The pound has started the year on the front foot after the potential trauma by the absence of a Brexit deal. The deal was finally agreed on Christmas Eve and since then the pound has continued to make steady gains across the board and in particular vs both the Euro and the US dollar.
Indeed, pound to euro rates hit their best level to buy euros since May earlier this week and the pound is now trading at 3-year highs vs the US dollar which is encouraging.
In the meantime it has been announced that the UK could remain in lockdown until 17th July. The British government has extended coronavirus laws which will allow councils across England the power to close a number of different businesses including pubs, restaurants and shops as well as public spaces.
Cases continue to remain worryingly high and we are only at the end of January. As you will remember the previous lockdown only began in March last year and we are currently two months behind that date. One key difference is that a few million people have had the vaccine which is promising. However, Professor Jonathan Van-Tam has suggested that even those who have had the vaccine could still spread the virus on to others.
Turning the focus back towards the economy and British employers planned to cut almost 800,000 jobs last year. When the UK was previously in recession back in 2010 the cuts were of 530,000 jobs and the highest since records began 15 years ago.
UK borrowing has also hit record highs with the UK government borrowing £34.1bn last month which is the highest December on record. Borrowing by the government for the latest financial year has now hit £270.8bn which is £212.7bn more than a year ago according to the Office for National Statistics.
The euro managed to gain some strength vs the pound at the end of the week with lockdown in the UK potentially being lengthened once again. The euro also managed to gain some strength after ECB president Christine Lagarde suggested that the central bank may not need to use all its proposed measures in combatting the effects of the pandemic.
This helped the euro fight back at the end of last week having fallen to 8-month lows vs the pound this time last week.
Yesterday the Portuguese went to the polls to vote in the latest presidential election. Latest polls suggest that current leader Marcelo Rebelo de Sousa will win with up to 70% of the vote and this could give support to the euro as it means certainty during what is arguably once of the most uncertain times in modern history.
However, the single currency could start to have a problem after EU officials claimed that Brexit could cause other nations to think about whether or nor they want to remain in the bloc.
The European Union has fears that Italy, Greece and Spain could consider leaving in the future. Dubbed previously as some of the ‘PIIGS’ of Europe if any of them shows signs of wanting to leave this could cause problems for both the European Union as well as the euro.
Political commentator Helen Dale was quoted as saying that there is a movement towards ‘a gradual withdrawal from the euro.’
On Thursday we see the latest release of both Industrial as well as Consumer Confidence for the Eurozone. This will be closely followed by the Germany Consumer Price Index which measures inflation. With little economic data due out this week Thursday could see some movement for euro exchange rates as we towards the end of the month.
The US has finally managed to welcome its new President Joe Biden who was inaugurated on Wednesday. Following the march on Capitol Hill the ceremony went through with little disturbance.
Over the weekend it was announced that the trial over impeachment on Donald Trump will begin the week of 8th February. With Trump’s Twitter account having been disabled and his ability to alienate the mainstream press over the last few years his voice has not silenced but the volume has certainly been turned down.
Trump is the first President to have been impeached twice. In order for him to be convicted this would mean a two thirds majority but this appears highly unlikely with so many Republicans suggesting that they will oppose the idea.
Meanwhile, since Biden has come in he has announced that he will aim to boost the US economy during the pandemic. The plan is to provide additional food aid and well as providing protection for workers who are on the front line.
On Wednesday the US Federal Reserve meet to discuss their latest monetary policy plans. This will be first under Biden’s presidency and although he is unable to have an influence on the policy it will be interesting to see how he may react in the weeks ahead.
On Thursday we will see the US release its latest jobless claims and with cases having risen to 25 million people in the US and the various lockdowns still in place in the US this could cause US Dollar weakness if the figures are worse than expected.