Covid vaccination roll outs speeds around the world are becoming increasingly more important in the eyes of the currency market, as with a higher percentage of a country’s population vaccinated, they could well be deemed to have an economic advantage following COVID-19.  For example, in Dubai where business remains open and relatively unaffected by COVID-19, office rental costs climbed by over 70% as demand for offices space in a free moving area increases.

As of 15 January, the UK had administered 5.9 vaccinations per 100 people. This puts the UK towards the upper end of the world vaccination ranking and compares to 27 in Israel, 19 in the UAE, 3.7 in the US, 2.9 in Denmark, 1.9 in Italy, 1.3 in Germany and 0.6 in France.  An example of this is confirmation that Disneyland in California is to become a mass vaccination facility as countries around the world mobilise to distribute vaccines at speed.

UK Covid Cases Rise

Here in the UK the government have recently opened 10 mass vaccination centres this week remain promising but other countries could well speed up roll outs and even at the rate of 2 million people a week it would take well into summer for the ‘high risk’ percentage of the population to receive theirs. The health secretary only this week suggested people should not be considering holidaying abroad this summer confirming he has already booked his in Cornwall.

Brexit impacts still carry some weight in the currency market. Sadiq Khan reported in the FT this week calling for more support and clarity over the trading agreement going forward for the finance sector. He called it an ‘no-deal for UK Finance’. Fishery rights have also remained under the spot light with fishing lorries driving to Westminster this week stating they can fish the seas but now cannot sell to their largest customers in Europe.  Many don’t expect any real clarity on these situations in the immediate future but the financial repercussions on ‘UK PLC’ could well start to be seen in the weeks and months ahead as economic data is released.

For example, recently it was confirmed that the UK economy shrank by 2.6% in November as lockdowns hit activity in the service sectors and UK research suggested as many as 1.3 million foreign born people left the UK over the last 12 months. The next economic data from the UK will be tomorrow with retail figures, public sector net borrowing and PMI data for the service sector.

Borrowing costs could well be the main trend setter going forward for the UK with debt levels growing hugely over the last 12 months, 4 times more debt has been taken by the UK over the last 12 months than through the 2008 financial crisis to put it to scale.

The furlough scheme which has been a big contributor is currently scheduled to finish at the end of April, however voices from business has been building calling for this to be extended until July.  Going forward we have to also be aware of the pending UK Budget in early March, will the chancellor give any extension to this scheme beforehand? If so, this could well impact Sterling’s value on the news.

UK government borrowing, in essence government bonds which are valued based on future tax returns by the government, are widely expected to continue to climb. The concern for many is that currently this injection of money is going to the major banks to lend out, but they seem hesitant in lending this to the public with fears of them being unable to repay the debt. As a result, money is flowing into the big corporations which seem to be using the money to buy back their own shares supporting the climb in the stock markets globally. The outcry from the public focussing all around the potential lack of this money going into new job creation.

Wells Fargo Releases Upgraded US Dollar Forecast

US president coming into the White house

GBPUSD levels now sit close to a multiyear high. The reason for this is the building speculation that the US will continue with or even increase spending and stimulus.

Janet Yellen, who is U.S. President Joe Biden’s nominee for Treasury Secretary, urged lawmakers this week to “act big” on coronavirus relief spending, arguing that the economic benefits far outweigh the risks of a higher debt burden. US president Joe Biden announced recently that he will seek to pass a $1.9tn stimulus package once in office. This includes a further $1,400 in stimulus cheques to most Americans, increasing unemployment benefits, plus financial assistance for state and local governments and lastly support for small businesses.

Economically almost 1m American filed a new unemployment claim two weeks ago after the Christmas period, this was the highest weekly total since August 2020. Inflation in the US was reported to have climbed and picked up to 1.4% in the year to December which was put down to rising energy prices. Industrial production has however remained resilient and grew in the US in December.

Through today US economic data being released includes housing, jobless and business confidence data however most expect this to be overshadowed by the first day of the new President in the US.

European Central Bank update today

Following the Brexit negotiations ending there has been an increasing focus in Europe about the speed with which they ‘bounce-back’ and move forward following the pandemic. This however is happening in a wide-ranging way across different members, for example France has been sluggish and Germany has grown back much quicker. Politics across Europe also seem to be becoming increasingly stretched. The Dutch government resigned recently following a scandal that saw parents falsely accused of child benefit fraud. In essence they are pending an Election now expected in March. In Germany Armin Laschet, seen as a centrist, has recently been elected leader of Germany’s Christian Democrats making them a real frontrunner to succeed Angela Merkel going forward. In Italy the prime minister, Giuseppe Conte, now faces two confidence votes this week after coalition partner Italia Viva withdrew its support for them. Some have now commented that there may, be in real terms, even wider spread of member states across the block in effect creating two different continents within Europe.

Economic indicators across Europe also is adding more weight to the forecast that there may well be a double-dip recession in the region, not supported by new European lockdowns and concerns of more to come.

The recently appointed European Central Bank (ECB) president Christine Lagarde warned central banks and governments of the “very serious risks” of withdrawing stimulus too early going forward. Many will be looking for the stimulus to filter through to an economic benefit.

There is an EU summit starting as of today where some of the above points will be discussed in more detail. We also have the latest ECB interest rate decision and commentary this afternoon which has all the ingredients to impact the value of the single currency in todays session.  Tomorrow to end the week there is also confirmation of PMI data for both the manufacturing and Service sector, both are expecting to see a contraction because of the pandemic lockdowns and could therefore impact the euros price as the week comes to an end.

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