GBP continues to struggle as tension continues to increase with the European Union, after going through a midweek sell-off, sterling reaches a six-week low against the dollar and a two-week low against the euro. As a result, this has gained a real doubt within investors, however, some analysts remain positive about the currency and believe that the pound will stay strong due to the success of the UK’s vaccine rollout.
Sterling began the month on a high with the interbank rate reaching 1.17 GBP/EUR and 1.41 GBP/USD. This was a reflection of a very successful vaccine distribution as well as a road map with an estimated given time on when the economy would be back to normality.
However, after having a very successful Brexit negotiation with the EU, it seems as though that another set of negotiations needs to be done. This time it is for the rollout of the AstraZeneca vaccine. On Tuesday evening, Prime Minister Boris Johnson admitted on a private meeting with Conservative MP’s that the main reason for the UK’s vaccine rollout success was because of capitalism and due to greed. He then later said that he has regretted these comments. This then resulted in EU leaders taking action and looking to ban exports of the vaccine to the UK which has led to the Prime Minister to persuade French President Macron as well as other EU leaders to remain the border open and to prevent any trade wars from happening.
As the tension continues to rise between the UK and the EU, we could see sterling weakening until some form of agreement has been put in place which seems to be like Deja vu during the Brexit negotiations.
There is not a lot of economic data that is going to be released for the rest of this week, however, if you would like to keep up to date with any sterling news, please contact your account manager.
The euro continues to weaken as new infections continue to rise and new lockdowns are put in place. The fear of a third wave is most certainly taking a massive hit on the single currency.
With rising new cases in Poland, the country was forced to go into lockdown early this week and some of its residence deciding to cross the border over to Germany (where the infection is also rising) providing that they have a negative test. Germany’s slow start to the vaccination has taken a lot of criticism on the news which caused German Chancellor Angela Merkel to act on the situation. She said that after Easter General Practitioners will be included in the distribution of the vaccine which will help speed up its rollout. In Italy, Prime Minister Mario Draghi said that it might adopt an independent strategy including an evaluation of the Russian Vaccine “sputnik” if EU’s supplies are inadequate.
With the slow rollout of the vaccine across the bloc, the frustration continues to increase even though the use of the AstraZeneca vaccine was resumed after being paused due to the question of its safety. However, the German health minister has warned that even though the vaccine has now been allowed to roll out again, there is simply not enough of the vaccine across Europe to stop a third wave.
Based on these statements, it does not look as though that the EU economy will begin its recovery anytime soon and could take a major hit in the currency. Over the last couple of days, the EUR has taken some losses against its main pairs like GBP and USD. Should any of these changes, then we could assume its recovery sooner rather than later otherwise we could see further deficit within the economy.
Today we see the first day of the EU Economic Summit where discussions about COVID response, the single market, industrial policy, and over economic transformation will be on the table. If you want any further information about the euro, please contact your account manager.
The dollar has now had a shift in momentum and is showing great signs of recovery. The US economy has been going from strength to strength as they continue to have success with their vaccine rollout. So far 130 million Americans have received the jab and are now protected, with the US averaging around 11.9 million jabs per day.
Fed Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen completed two days of hearings in front of Congress yesterday with Powell acknowledging its economic recovery. He stated that The US has recovered quicker than expected but the job is not complete as of yet and that the fed would remain supportive for as long as it takes to fully recover. He also highlighted the rise in inflation but is supported by its economic recovery.
According to Anuradha Gaggar Senior Global Investment Analyst for Commonwealth Financial Network, "Fed is targeting inflation anchored at 2%, or average inflation of 2%, so higher than 2% inflation for a period of time is quite tolerable. Also, if inflation does rise precipitously, the Fed has policy tools available to bring it under check. Interest rates have responded to news of vaccinations and improving economic outlook, so really rising for the right reasons”.
Today we see the US GDP data and GDP Price index which is the Annualized change in the inflation-adjusted value of all goods and services produced by the economy. The unemployment claims will also be released later today which could have an impact on the dollar.
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